It looks like Tokyo will be getting its own Ben Bernanke to run Japan’s central bank. Asian Development Bank President Haruhiko Kuroda, likely to be nominated for the post by Prime Minister Shinzo Abe, is described by the WSJ as an “open critic of the Bank of Japan” who has made clear that as BOJ boss he would “ramp up and diversify the BOJ’s program of buying assets like government bonds from private banks.” What’s more, the even-more-dovish Kikuo Iwata is skedded to be one of Kuroda’s two new deputies.
With a new, easy-money leadership team in place, it seems a good bet the BOJ will a) begin open-ended bond buying sooner than planned and b) increase the amounts of monthly asset purchases. Which is just the kind of medicine — though not the only medicine — the Japanese economy needs after suffering years of slow growth and deflation. The picks are certain to raise concerns about a global currency war. But this view seems more on point (again via the WSJ): “This is not a currency war—it’s a growth war,” David Zervos, a fixed-income strategist at Jefferies & Co., said in a recent note.
If there is to be a global growth war, let the Fed escalate. Let it take the next step in its new approach to monetary policy by targeting the level of nominal GDP and not just inflation and unemployment targets. Again, my anti-stagnation formula: easy money + spending austerity + pro-growth tax and regulatory reform.