Friday, December 21, 2012

Abe off to a Great Start and the BOPJ Follows, But Does That Mean that It Caved?

If media reports are to be believed, the Bank of Japan will agree to adopt a 2% inflation target and upgrade the October 31 Government-BOJ joint document to a formal accord. Add these to the so-far highly positive market response—a falling yen and spiking stock prices—and the Abe administration is off to a fine start even before it has begun. Note also that Abe will then have the option of reappointing a cooperative BOJ Governor Masaaki Shirakawa and avoid a potentially debilitating battle to install a more compliant successor in April, when Dr. Shirakawa’s five-year term expires. So, is Shirakawa a craven coward thinking only of saving his neck come April for falling in line with the LDP and the presumptive prime minister, as some pundits (and tabloids and weeklies) will surely be claiming in the coming days?

Of course not. The uncertainty generated from a Shirakawa refusal would make the BOJ governor an instant, four-month lame duck, at odds with the incoming administration, and plunge the market into disarray. Plus, the BOJ under any successor would be seen as the handmaiden of the Abe administration, a perception that is bound to debilitate the central bank’s credibility. Abe went one way, the market followed. It would have been futile, indeed harmful, to go countercyclical on the political-economy trend-line. Shirakawa decided to make omelettes, and who can blame him?...or the institution, of which he, as an alumnus, is a personal embodiment.

Or so one line of thinking goes. I cannot prove it, but it’s at least more plausible than the craven coward theory that you may begin hearing any time now.

It’s a choice between a government divided as you stand by your principles and a government united what you think is something within tolerable limits. And that, more often than not, is what governance is about.

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