Tuesday, November 20, 2012

BOJ Governor Hits Back; Ball in Abe’s Court

No one will mistake Shinzo Abe, LDP President and odds-on favorite to become the next prime minister of Japan before the year is out, with an economist. Or even a financial analyst. Armed with a law degree from a safety school for the well-to-do, his main political interests mark him as a values conservative. He had never demonstrated much interest in economic policy in any of his high profile assignments, including his previous one-year venture as head of government. So, when he came out forcefully proposing a BOJ that underwrites construction JGBs*, punted for a 2-3% inflation target, and talked about amending the Bank of Japan Act to better coordinate fiscal and monetary policy, my first thought was, Who’s feeding him those lines? My money is on Abe’s buddy Yasuhisa Shiozaki, a former BOJ official who most likely has his eyes on the MOF portfolio.

Well, we may get to know sooner rather than later, since Dr. Masaaki Shirakawa, the midl-mannered BOJ governor, in an unusually blunt retort (at least online), that issuing construction JBGs “backed by the authority to print money could eliminate constraints (on expanding fiscal expenditures)”, that 2-3% inflation target was “unrealistic” and “could negatively impact fiscal reconstruction and the real economy” pair, and that he “fervently hoped that the independence of the BOJ would be respected.” Abe needs some cover fire.

Abe has been looking pumped, and he should be. New-found health—his tummy woes finally behind him, he’s cast off the funereal air that served him so well when he stood beside immediate family members of the abductees as a deputy chief cabinet secretary ten years ago—an unexpected come-from-behind victory in the October LDP presidential race, the LDP lead in the polls, and the bump/dip that his comments generated in the stock/currency market would boost anyone’s confidence. But Abe has always tended to talk too much. And, unlike, say, Prime Minister Koizumi, he’s not good at confining himself to talking points and repeating them over and over again. But he’s not Krugman. Or Obama. Or Oprah. He’s not a great explainer, nor does he exude convincing warmth. Toru Hashimoto routinely backs off from his policy stands, apologizes for indiscretions, and emerges unscathed, the tumbler mayor to Reagan’s Teflon president. Abe has no such Get-Out-of-Jail-Free pass.

I suspect that Abe is going to have walk back his statements a tad. And that improves the chances of Dr. Shirakawa being reappointed when his term expires in April—which I would personally welcome, since I made that call for a modest fee a month ago.

* “Construction national bond” is a term used for any JB that covers an expenditure that does not have to be written off during the same fiscal year. Some of it, such as a capital injection into a state corporation, has nothing to do with actual construction.

No comments: