Sunday, December 30, 2012

Some Thoughts around the Upcoming Choice for BOJ Governor

You won’t want to take me too seriously; I’m the one who predicted several months ago that Masaaki Shirakawa would be reappointed as the governor of the Bank of Japan. The LDP and Shinzo Abe laid out a direct challenge to the BOJ, demanding a 2% inflation target (with 3% nominal GDP growth, which, though no one seems to notice, is a pretty modest growth rate to aspire to) and a government-central bank policy accord and threatening legislative action if need be. Although Dr. Shirakawa has indicated his willingness to accommodate both demands, the Abe administration appears to be intent on finding a replacement. Several names of academics, as well as the usual coterie of former top MOF officials have been floated, with Professor Kazumasa Iwata being the favorite among Abe’s close associates, if this Yomiuri report is to be believed. The reason given in the report is that his policy recommendations are closely in line with the LDP’s and that he has worked for DPJ administrations as well, which would make it easier to secure the consent of the House of Councillors, where the LDP-Komeito coalition does not have a majority.

The need for consent from both Houses may yet earn Dr. Iwata the ultimate prize for academics who work closely with the government over the years amassing political capital. But what happens in the future if there is a significant disagreement between the government and the BOJ? Dr. Iwata is a person who follows his own council. Besides, is there a professional upside to bending ones complying with the government’s demands when one has already reached what must be the upper limit of your extra-academic career? By contrast, a BOJ or MOF official has the interests of his/her institutions to consider. If Dr. Shirakawa has a chance of reappointment, that’s where to look.

Of course, some academics—I’m not naming names—will also bend.

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