Bloomberg News

Japan Can Sustain Growth Unseen Since ’90s in Kuroda Vision

February 11, 2013

Asian Development Bank president Haruhiko Kuroda

Haruhiko Kuroda, president of the Asian Development Bank, leaves an interview in Tokyo on Feb. 11, 2013. Kuroda, a former career Finance Ministry civil servant and Tokyo University graduate who studied economics at Oxford, declined to comment on whether he was a contender to lead the central bank. Photographer: Kiyoshi Ota/Bloomberg

The Bank of Japan could usher in a growth spurt unseen in a generation by stepping up stimulus and ending deflation, according to Haruhiko Kuroda, the head of the Asian Development Bank and a potential contender for BOJ chief.

“Japan’s economy has suffered from prolonged deflation that must be eradicated -- that would raise short-to-medium term growth prospects significantly,” Kuroda, 68, said in an interview in Tokyo yesterday. “Two percent plus for calendar year 2013 would be quite possible and for some years could be sustained,” he said, referring to a pace of expansion not maintained in Japan since stagnation set in in 1992.

Kuroda, who said he was “satisfied” with his current job amid Prime Minister Shinzo Abe’s preparations for unveiling a nominee to succeed Masaaki Shirakawa, said that additional BOJ stimulus could be justified for 2013. The BOJ last month said it would start open-ended asset purchases only in January 2014, and the board is forecast to keep its policy unchanged at a Feb. 13-14 gathering, according to a Bloomberg News survey of analysts.

Japan, along with other nations, has “really substantial room for monetary easing,” he said. There’s the equivalent of trillions of dollars of financial assets that could be bought by the BOJ, according to Kuroda.

He didn’t specify how policy makers ought to add liquidity. Asked whether the BOJ could buy stocks, Kuroda noted that it has already been purchasing some. Decisions on how to add quantitative easing are up to the central bank, he said.

Job Prospects

Kuroda, a former career Finance Ministry civil servant and Tokyo University graduate who studied economics at Oxford, declined to comment on whether he was a contender to lead the central bank. He said he was “satisfied” with his current job at the ADB, with about four more years left on his term.

Japanese Economy Minister Akira Amari told reporters today that Kuroda is among those qualified to be BOJ governor, adding that Abe has yet to decide on a nominee.

The head of the Manila-based development lender supported the yen’s slide as a “natural adjustment” from overvaluation and said that the “global standard” for central banks to achieve their inflation targets is about two years.

“The identities of the new BOJ executives are of critical importance” to the policy outlook, Masayuki Kichikawa, chief Japan economist at Bank of America Merrill Lynch in Tokyo, wrote in a Feb. 8 note. “We anticipate the BOJ will move steadily to adopt the course charted by the Fed, including a stepped-up expansion of its balance sheet” and extension of the maturities of government debt bought for its asset-purchase fund, he wrote.

Top Pick

Kuroda, who advocated an inflation target more than a decade before the BOJ set its 2 percent objective last month, has been cited as the leading contender to succeed Shirakawa by economists at banks including JPMorgan Chase & Co. and Credit Suisse Group AG.

Shirakawa this month said he will leave almost three weeks before his term is up, on March 19, to align his departure with that of his two deputies.

With Abe making the end of deflation a key to his campaign ahead of a December election that swept his Liberal Democratic Party back to office, the yen has weakened and stocks have climbed since mid-November in anticipation of greater monetary stimulus.

The yen has declined about 16 percent in the past three months against the dollar, to 94.16 at 9:06 a.m. in Tokyo. The Nikkei 225 Stock Average has jumped about 30 percent over the same period, extending its gains with a 2.3 percent rise today.

‘Natural’ Slide

“Basically this is natural adjustment from an excessively high or extremely high rate of exchange toward a more sustainable level,” Kuroda, who was in charge of currency policy at the Finance Ministry from 1999 to 2003, said yesterday. He declined to specify a fair value for the yen.

Japan has been criticized for driving down the yen by officials from South Korea to Russia in the run-up to a meeting of finance chiefs from the Group of 20 nations in Moscow this week. Abe administration officials have said that they are focused on ending deflation, rather than seeking a specific level for the yen.

Kuroda indicated that expectations for Abe’s policies had affected the exchange rate. “So-called Abenomics -- monetary easing, fiscal stimulus and growth strategy -- may have influenced exchange rate movements.”

Japan’s economy has suffered under a decade and a half of deflation, which has pushed up the real burden of debt and caused companies and households to put off spending, Kuroda said.

BOJ Target

Even as it unveiled its 2 percent target last month, the central bank’s own forecasts showed consumer prices won’t rise that much in the coming two years.

Consumer prices excluding fresh food fell 0.2 percent in December. The price gauge hasn’t advanced 2 percent for any year since 1997, when a national sales tax was increased. In December 2002, Kuroda said, as vice finance minister, that the BOJ should aim to push up prices by 3 percent in three years. He said yesterday that 2 percent is an “appropriate” target.

“A clear inflation target is absolutely necessary, and a commitment by the Bank of Japan to eradicate deflation, 15 year- long deflation, through whatever measures available,” said Kuroda, who took the helm of the ADB in 2005.

Japan’s gross domestic product grew in the final three months of 2012 for the first time since March last year, according to the median estimate of 32 analysts surveyed by Bloomberg News. The GDP report is due on Feb. 14.

Growth Potential

In the long run, the nation’s growth potential is about 1 percent to 1.5 percent, or roughly the same as the U.S. and developed European nations when adjusted for population, Kuroda said.

Kuroda also said that the yen’s depreciation doesn’t come too late to help his nation’s economy, which has seen manufacturers including Sharp Corp. and Sony Corp. hurt by a surging currency in recent years.

Toyota Motor Corp. (7203:US) has risen more than 50 percent in the past three months, with the automaker last week boosting its profit forecast for the year ending in March to a five-year high.

The jump in equities raises the risk of disappointment as Abe prepares to unveil his choice of central bank chief. The government should announce its nominations for the new BOJ leadership team by the end of February, the ruling Liberal Democratic Party said last month.

Kuroda is “the leading candidate” to head the central bank, Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG in Tokyo and a former Bank of Japan official said this month, joining JPMorgan’s chief Japan economist Masaaki Kanno in the call.

Iwata Duo

Koichi Hamada, a retired Yale University economics professor who is advising Abe on monetary policy, said in December that Kuroda was a potential candidate, along with Kikuo Iwata, an economics professor at Gakushuin University, Kazumasa Iwata, president of the Japan Center for Economic Research and Heizo Takenaka, a former economic policy minister. Toshiro Muto, a former deputy BOJ governor, is also perceived in the running.

Abe’s nominee must be confirmed in Parliament. While the LDP has a majority in the lower house, it will need support from opposition lawmakers in the upper body.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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