Haruhiko Kuroda built a career battling a strong yen and the Bank of Japan governor is unlikely to change course in his final year at the helm, several sources said, despite political pressure to acknowledge that the weak currency is now a problem.
Sources familiar with the bank’s thinking and people close to Kuroda, whose decade in charge ends next April, said he is likely to protect his legacy by avoiding tweaks to a monetary policy that continues to treat a strong yen as enemy No. 1.
The BOJ’s dovish signals may give markets a chance to drive down the yen further, as prospects of steady policy tightening by the Federal Reserve widen the Japan-U.S. interest rate gap.
“The BOJ looks at inflation, not yen moves, in guiding policy,” one of the sources said.
Kuroda’s career as a finance bureaucrat was marked by fighting rises in the yen that threatened Japan’s export-reliant economy.
After landing the BOJ’s top job in 2013, he maintained that stance and engineered a dramatic yen fall by pumping in massive monetary stimulus, a policy that is considered among the key successes of former Prime Minister Shinzo Abe’s pro-growth Abenomics policy mix.
Now, Kuroda is increasingly alone in repeating the benefits of a weak currency, as government officials escalate their warnings against excessive yen declines that help push up import costs and consumer prices for energy and food.
The weak yen has emerged as a political hot-button as lawmakers demand measures to cushion the blow from rising inflation ahead of Upper House elections due in July.
The mood among companies is starting to change, too. Kengo Sakurada, head of business lobby Keizai Doyukai, said on Tuesday that current yen levels were hurting retailers and can “hardly be seen as appropriate.”
Even former Finance Ministry colleagues, most of whom like Kuroda struggled to combat a strong yen, are beginning to brand currency weakness as indicative of Japan’s waning economic might.
Kuroda appears unfazed, and continues to argue that while a weak yen may hurt households and retailers, the benefits to the economy outweigh the cost.
The BOJ is still relentless in defending its 0% cap for long-term interest rates, set under its ultra-easy policy.
Undeterred by the yen’s slide to a six-year low against the dollar on Monday, it offered unlimited, fixed-rate purchases of 10-year government bonds through Thursday and ramped up bond-buying for other maturities.
“In a sense, the BOJ is driving down the yen with unlimited bond buying,” said former top currency diplomat Naoyuki Shinohara, who was Kuroda’s colleague at the finance ministry. “It probably doesn’t see the yen’s current levels as dangerous.”
Unwavering and pragmatic
So far, there is little sign of discontent within the BOJ over Kuroda’s stance. Dovish board members, such as Goushi Kataoka, see the weak yen as a key channel through which the bank’s easy policy boosts growth.
A summary of opinions of a March meeting made no mention of the pros and cons of a weak yen.
Prime Minister Fumio Kishida’s administration meanwhile continues to defend the BOJ’s ultra-easy policy as a necessary support to a still-fragile economic recovery.
“It’s hard to tighten monetary policy to deal with cost-push inflation, which means monetary policy must remain loose,” said Deputy Chief Cabinet Secretary Seiji Kihara, who is considered among the prime minister’s closest aides.
Pressure to tweak the yield cap could become overwhelming if the yen, now hovering near 122 to the dollar, plunges to around 130, some analysts say.
But Eisuke Sakakibara, who is known as “Mr. Yen” for master-minding currency interventions in the 1990s, argues that hiking BOJ interest rates will do little to stop yen declines.
For now, Kuroda is expected to ensure the BOJ stays the course on ultra-easy policy. While political pressure may mount for him to budge, the law does not give the government power to fire the central bank governor. Kuroda is unlikely to be reappointed, having already served an unusually long term.
Kuroda’s predecessor, Masaaki Shirakawa, voluntarily left the job several weeks before his term ended, after facing a barrage of criticism for doing too little, too late to beat deflation.
Stepping down early, or hiking interest rates in the face of political pressure, is not in Kuroda’s nature, say people who have regular interactions with the governor.
“He may be under heat but that’s probably not a concern to him,” one of the people said. “He’s extremely pragmatic and unwavering, so I can’t see why he would choose to step down or tweak policy now.”
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