Kuroda’s Start to 2nd Term Marred by Abe’s Plunging Popularity

April 15, 2018

Tokyo- Bank of Japan Governor Haruhiko Kuroda made a gloomy start to his second term last week, amid the falling popularity of Prime Minister Shinzo Abe, who pushed for his reappointment, as well as overshadowed by signs of slowing economic growth in the country.

Kuroda's biggest task in the second five-year term is to achieve the BOJ's target of 2 pct inflation and pave the way for monetary policy normalization, or an exit from the current massive easing campaign.

As a result of huge government bond purchases under the easing policy, the BOJ now holds over 40 pct of all outstanding Japanese government bonds, giving rise to criticism that the central bank is effectively financing government spending, a practice that could damage the country's fiscal credibility.

Furthermore, side effects of the easing policy are increasingly visible, with interest rates staying at very low levels, pressuring earnings at regional banks in particular.

In April 2013, soon after taking the helm of the BOJ, Kuroda announced that the central bank would embark on "another dimension" of monetary easing to boost inflation to 2 pct in two years. After five years, however, the BOJ is still far from meeting the inflation target.

In February this year, Japan's core consumer price index rose 1.0 pct year on year, half of the BOJ target but still the fastest pace in over three years, according to a government report last month.

"I will devote all my energy to finishing the task of meeting the price target," Kuroda told a press conference last Monday at the start of his second term, renewing his commitment to the mission.

The massive monetary easing, one of the "three arrows" of the prime minister's "Abenomics" reflationary policy mix, has produced yen weakening and stock price rises, which have been major driving forces for the Japanese economy's current growth run, believed to be the second longest since World War II.

But the positive trends in the stock and currency markets could reverse if the end of the Abe administration, now mired in scandals, becomes a real possibility, observers said.

"Speculation may spread that Abenomics will be derailed," triggering rapid yen strengthening and a stock market slump, said Hajime Takata, chief economist of the Mizuho Research Institute.

Abe was initially seen likely to win handily a third term as president of the ruling Liberal Democratic Party in a party leadership election in the autumn, and stay in the prime minister's post. Jiji Press