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Junichiro Koizumi |
There are only six weeks left until Masaru Hayami, Japan’s central bank governor, retires. And Japan’s prime minister, Junichiro Koizumi, seems no closer to naming Hayami’s successor. But with time running out, Koizumi won’t be able to delay his decision for much longer.
Hayami’s heir was supposed to have been named before or on January 20. This announcement was, however, pushed back to some unspecified date this month. Many observers now believe that it is unlikely this will be before the last week of February.
On the surface, Koizumi’s choice looks relatively easy. The list is after all short, with only Toshihiko Fukui and Noboyuki Nakahara regularly bandied around as potential candidates. The lack of aspirants, however, is perhaps testament to the fact that few people actually want to do the job.
Even the bookies’ favourite, Fukui, officially says that he doesn’t want it. “But we don’t believe him,” says one economist. “He only says this because it’s frowned upon to openly display your intentions and ambition.” Nakahara, on the other hand, has made no such statement. But then he hasn’t said he would take the job either. “If he is given a chance, then he wouldn’t hesitate to be Bank of Japan governor,” believes Yasushi Okada, CSFB’s chief economist in Tokyo.
According to Koizumi, the right person for the job is someone who will take control of the country’s monetary policy, set an inflation target and therefore set about fighting deflation. However, it has to be understood that what Koizumi says and what he wants may not be what he gets. Because to get any sort of consensus among the different political factions and corporate interest groups, Koizumi will have to make a lot of concessions. This may mean opting for second-best. It seems that the prime minister is already preparing the public for such an eventuality.
As Koizumi gets ready to disappoint once again, so the definition of an aggressive deflation fighter has noticeably weakened. Koizumi even went so far as to describe the incumbent governor as such a person. This of course totally ignores the fact that for most of Hayumi’s career as governor he has presided over a deflating economy and failed to introduce any measures to deal with it. As one Tokyo-based economist puts it: “It’s right up there in terms of ridiculous comments. It was tantamount to standing up and saying that the Pope is a great Protestant or that Saddam Hussein is an ambassador for peace.”
Furious back-pedalling
Richard Jerram, ING’s chief economist in Japan, agrees: “There is some furious back-pedalling taking place. And such a statement leads to the conclusion that the next guy doesn’t have to try any harder than Hayumi in order to meet the job description.”
The path, it seems, is being cleared for the safe and conservative Fukui, rather than the combative reformer Nakahara. Jerram says: “Nakahara would do something different. But politicians aren’t keen on that.”
Nakahara is a loud proponent of inflation targeting. And according to foreign bankers he would make a better partner for Heizo Takenaka, the economy and banking minister. Both believe in dragging Japan up by the bootstraps with radical structural reform and confronting the banks’ crippling non-performing loan problem head-on. But such blunt ideas have made political enemies for Nakahara. “Japanese officials don’t like him. And for the Bank of Japan officials it would be a nightmare for them if Nakahara got the job,” believes Okada at CSFB.
Nakahara used to sit on the BoJ’s board where he was viewed as a nuisance and a lone voice. His proposals were often gunned down eight votes to one. “But three months later, someone would submit the same proposal and it would be passed,” says Okada. He adds: “He would also understand how the bank works and that would make the bureaucrats very uncomfortable.”
The bureaucrats, however, would readily accept Fukui. His background and beliefs fit their own requirements. Fukui is a lifelong central banker who managed to climb to the upper echelons as deputy governor. However, in 1998 he was forced to step down from the position after several of his officials were implicated in scandals that involved divulging sensitive information to the private sector in return for entertainment.
Although Fukui was not involved himself, he took responsibility and made the gesture of resigning. He understands the bank and how things should be done. And while many know that he’s not as dynamic as Nakahara, he will build the necessary trust between bankers, politicians and bureaucrats – something Nakahara has yet to prove he can do.
But, as critics say, what is the point of that if still nothing gets changed? Jerram says: “He’s very much a BoJ man through and through. And like the BoJ he doesn’t believe in inflation targeting or a radical monetary policy.” If Fukui and the BoJ do climb into bed together, the earth will definitely not be moving.
It’s an important decision for Koizumi as it will tell the world a lot about the seriousness of his plans to drag Japan out of its economic quagmire. Observers are hopeful that rather than serve the self-interest of others he will actually decide to make the decision for the good of Japan. If he chooses Fukui, many will be left very unsatisfied. But then when it comes to Japan that’s exactly what everyone expects.
