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Mr. Exit or Mr. BOJ: A Comparative Analysis Competition intensifies for Japan's top central bank position

Image: Reuters Berita 24 English - The next head of the Bank of Japan will likely be chosen between two career central bankers whose distinc...

Image: Reuters

Berita 24 English - The next head of the Bank of Japan will likely be chosen between two career central bankers whose distinct policy orientations and track records could impact the timing of an eventual withdrawal from ultra-easy monetary policy.

As past and current deputy governors, Hiroshi Nakaso and Masayoshi Amamiya have extensive knowledge of central bank matters, making them a safe pair of hands to guide a future exit from ultra-low interest rates, no matter how distant.

Given Japan's shaky economy and the need to keep the cost of funding its enormous public debt low, neither candidate would rush to tighten monetary policy, according to five former and current policymakers who have worked with or under them.

The BOJ's complicated framework of policies combines massive asset purchases, negative short-term interest rates, and a yield cap of zero percent, which makes Japan an outlier in the global race to raise interest rates, they argue.

"Nakaso belongs to a camp that believes central banks should not meddle too much in markets, but Amamiya appears to be more flexible," said Nobuyasu Atago, a former BOJ official and current head economist at Ichiyoshi Securities.

"Their perspectives on how far central banks should push the bounds of monetary policy are where they diverge the most."

After the July upper house election, Prime Minister Fumio Kishida's selection of a successor to BOJ governor Haruhiko Kuroda, whose term ends in April of next year, is anticipated to accelerate.

Kishida's hold on power would be strengthened and he would be able to differentiate his policies from those of previous prime minister Shinzo Abe's "Abenomics" economic stimulus programme if the ruling party wins the election, which seems almost probable given to the opposition's weakness.

This could be advantageous for Nakaso, who has criticised Abenomics for its excessive reliance on monetary policy and frequently warned of the costs of protracted easing.

In a recently published book, Nakaso outlined in detail how the BOJ could end its ultra-loose monetary policy: increase the interest paid on financial institutions' excess reserves, cease reinvesting money from maturing bonds, and gradually reduce the bank's balance sheet to levels at which market functions recover.

"Interest rates will face upward pressure if the public becomes more tolerant of higher prices, allowing the BOJ to normalise monetary policy," he told Reuters.

Nakaso is the current chairman of the private think tank Daiwa Institute of Research.


In contrast, Amamiya, Kuroda's right-hand man, has persistently advocated for ultra-low interest rates to support growth, even if it meant stretching the margins of financial institutions and depleting market liquidity.

In contrast to Nakaso, whose career centred on international and market issues, Amamiya has spent the majority of his time at the BOJ formulating ideas for monetary policy. Mr. BOJ is well-known for his unconventional monetary easing measures, which earned him the moniker.


Certainly, Kishida may choose a candidate with no experience in monetary policy. Uncertainty regarding the prospects for the economy and inflation could influence the course of monetary policy regardless of who leads the BOJ.

Some observers warn against categorising Amamiya as a staunch policy moderate. In a 2017 speech, he cited "many criticisms and voices of concern" on the possibility that the BOJ's yield cap policy could force it to finance government debt and make a future exit from ultra-loose policy challenging.

As a top BOJ official, Amamiya was instrumental in moving the BOJ's policy aim in 2016 from the rate of money printing to interest rates, releasing the bank from buying bonds at a defined rate.

He was also heavily involved in a policy review last year, when the BOJ abandoned its vow to aggressively purchase risky assets.

One of the individuals said of Amamiya, "If necessary, he can readily change course because he is a pragmatic and not someone who clings to ideals about the direction the BOJ should go."

Atago of Ichiyoshi Securities stated, "One thing is certain: whoever gets the post will have the enormous challenge of untangling Kuroda's stimulus."

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