Photo/Illutration Bank of Japan Governor Haruhiko Kuroda speaks at a Sept. 22 news conference. (Pool)

Speculation has already started over who will take on the tricky job of Bank of Japan governor when the term of current central bank chief Haruhiko Kuroda ends in six months.

The new BOJ leader chosen by Prime Minister Fumio Kishida will have to chart a very tight course due to political and economic circumstances of the times.

Government and BOJ sources consider two individuals who have held senior posts at the central bank as the leading candidates.

One is Masayoshi Amamiya, one of the two current deputy governors. The other is Hiroshi Nakaso, who was a deputy governor immediately before Amamiya and is now chairman of Daiwa Institute of Research Ltd.

Amamiya came up through the BOJ and has been involved in putting together various measures used for the monetary easing policy under Kuroda.

Nakaso entered the BOJ in 1978, a year ahead of Amamiya, and was a high-ranking official when the central bank had to deal with a series of bankruptcies of banks and securities firms in the late 1990s as well as the 2009 collapse of Lehman Brothers.

Kuroda initiated the ultra-loose monetary policy soon after he became BOJ governor in 2013. The policy is closely linked with the Abenomics package of economic measures pushed by then Prime Minister Shinzo Abe.

Lawmakers seeking to protect that legacy of the slain former prime minister have made clear they will not stand by and do nothing if someone willing to end the monetary easing policy is chosen as the next BOJ governor.

At the same time, the current policy has widened the gap in interest rates between Japan and Western nations. That, in turn, has fueled the rapid weakening of the yen against the dollar, creating higher consumer prices and a greater burden on household spending in Japan.

Although the Kishida administration has made dealing with surging consumer prices its top priority, Japan’s economic recovery from the novel coronavirus pandemic has been slower than the growth seen in other countries.

Kuroda has repeatedly said that slowness was the major reason the loose monetary easing policy had to remain in place.

But even those who favor ending the monetary easing policy also realize that any drastic move could lead to a jump in interest rates that might cripple the Japanese economy before it has fully recovered.

In Japan’s long battle against deflation, the BOJ under Kuroda had set a goal of a 2-percent increase in consumer prices. But even after almost a decade of a monetary easing policy, that goal was reached only this year in part because of the surge in energy prices caused by Russia’s invasion of Ukraine.

The higher consumer prices and weak yen are clear signs that the next BOJ governor cannot simply extend indefinitely the monetary easing policy started under Kuroda.

The next governor will not only have to find a reasonable exit strategy for the monetary easing policy but also send the correct message to financial markets so there is no sudden unloading of Japanese government bonds that would push up interest rates.

A former vice finance minister said of the next governor, “The individual will have to navigate a soft landing while gradually tweaking the policy taken by the BOJ until now.”

(This article was written by Takuro Chiba, Keishi Nishimura, Shinya Tokushima, Takashi Narazaki, Akiyoshi Abe, Yuki Kubota and Satoshi Kimura.)

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