Who is Haruhiko Kuroda?

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When Shinzō Abe (安倍 晋三) returned to power in December 2012 in a landslide victory, he did so with a platform of fiscal stimulus that makes previously profligate governments of the long-dominant Liberal Democratic Party of Japan (LDP, or 自由民主党, Jiyū-Minshutō) seem like budget hawks.Japan

What a difference three years in opposition makes.

Abe previously served as prime minister from 2006 to 2007, a term most distinguished for Abe’s nationalist rhetoric with respect to the People’s Republic of China.  Although the LDP has never been terribly allergic to public works projects, Abe returned to office with a campaign pledge to use government as a tool to spur the Japanese economy in a way that no Japanese government has contemplated since low-growth malaise took hold in the late 1980s and early 1990s.

Audacious doesn’t begin to describe what’s already become known as ‘Abenomics,’ and with a two-thirds majority in the lower house of Japan’s Diet, Abe has already embarked on a program of ¥12 trillion ($136 billion) in spending on public works and other stimulative measures designed to be a down payment on up to ¥200 trillion in spending over the next decade.  That’s even more striking in contrast to the prior government controlled by the now-decimated opposition, the Democratic Party of Japan (DPJ, or 民主党, Minshutō).  DPJ prime minister Yoshihiko Noda (野田 佳彦) spent much of his time in office passing an increase in Japan’s consumption tax from 5% to 10%, which should take effect starting in 2014, though all bets are off if the LDP wins a rout in this summer’s elections to the Diet’s upper chamber, the House of Councillors.

But the truly radical step has been Abe’s willingness to advance a vision of monetary policy that, until now, has been advanced only by the likes of Paul Krugman and other folks with views less orthodox than your average central banker.

During the campaign, Abe blatantly called on the Bank of Japan to raise its inflation target to 2% or even 3% after years of deflation, and he pledged to force the Bank of Japan to purchase construction bonds from the Japanese government, making it clear that he is willing to intrude on the traditional independence of Japan’s central bank.

Last year, it was seen as a radical step when Federal Reserve chairman Ben Bernanke set an explicit U.S. inflation target of 2% for the first time in a century of U.S. central banking history.

With the term of BoJ governor Masaaki Shirakawa (白川 方明) ending in April 2013, Abe was always certain to get his way on monetary policy.  With Shirakawa’s early exit, however, Abe has gotten a head-start in nominating Harhuiko Kuroda (黒田 東彦), currently the head of the Asian Development Bank, as the next BoJ governor.

Kuroda (pictured above) has been the president of the Asian Development Bank since February 2005, and he previously served as a vice minister of finance for international affairs from 1999 to 2003 and as a special adviser to the LDP’s reformist former prime minister Junichiro Koizumi (小泉 純一郎).  He will take over at a time when interest rates have been at zero for years, and deflation has been a problem for Japan for so long that investors expect structural deflation.

Gavyn Davies at FT Alphaville speculated earlier this week prior to the nomination that Kuroda is both pragmatic enough to win confirmation and audacious enough to pursue an aggressive easing campaign:

[He] has been very critical of the BoJ’s failure to eliminate deflation, and has strongly supported aggressive balance sheet expansion, and forward policy guidance, to achieve a 2 per cent inflation target. He has not, however, argued in favour of BoJ purchases of foreign bonds, which is one of the litmus tests being used by investors to gauge the attitude of the new incumbent…. Mr. Kuroda might be seen as a compromise candidate who could win the support of the Upper House of the Diet, a chamber which Mr. Abe does not control.

There are about a half-dozen bank governors who really, truly matter in terms of establishing what’s considered mainstream global monetary policy — and Kuroda will likely now be one of them, joining Bernanke, European Central Bank president Mario Draghi, Swiss National Bank president Thomas Jordan, and Canadian central bank governor Mark Carney, who is set to replace Mervyn King as the Bank of England governor in July 2013.

Kuroda’s appointment is important not only to Japan, obviously, but to the world in at least two ways.

First, monetary policy in the Abe-Kuroda era will have a ripple effect on the global economy — after all, Japan does have the world’s fourth-largest economy with a GDP of around $4.6 trillion, just about 30% of the size of the entire U.S. economy.  Markets, in fact, are already moving in anticipation of expected monetary easing — the value of the Japanese yen has dropped about 20% since last October, and the value of Japanese stocks has risen by 28%.  It goes without saying that if Abe can spur the Japanese economy out of deflation and into a phase of higher growth, with greater Japanese consumption, it would boost the global economy, as well as the U.S. economy.

Second, to the extent Kuroda succeeds in his experiment, it will provide a more ambitious central banking precedent that could pull monetary policy worldwide to a more relaxed view about inflation.

But the strategy isn’t without potential pitfalls. Continue reading Who is Haruhiko Kuroda?

What game theory tells us about the sequester showdown

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Here in the United States, we’ve reached the final day before $85 billion in spending cuts take effect from sequestration (Ezra Klein really does provide ‘everything you need to know‘ in background, so I won’t waste your time with my own explanation). USflag

For non-U.S. readers (or lazy Americans), here’s the issue in a nutshell: Back in 2011, the United States was nearing its debt limit ceiling — a totally idiosyncratic limit on the U.S. treasury incurring additional debt, regardless of whether the U.S. Congress has enacted spending necessitating the issuance of further debt.  It’s so idiosyncratic that only Denmark has a similar mechanism.

Because the Republican Party won control of the U.S. House of Representatives in the 2010 midterm elections, negotiations between U.S. president Barack Obama and the U.S. Congress in summer 2011 were more fraught than usual over the debt ceiling.  Partly, that’s because of the influence of the ‘tea party’ movement that boosted the ranks of House Republicans with anti-deficit legislators and that threatened the remaining House Republicans who cooperated too readily with the Democratic administration with primary challenges in future congressional elections (i.e., if you’re not conservative enough, we’ll put up someone who is: see, e.g., U.S. senator Bob Bennett, U.S. senator Dick Lugar).

So the solution was a last-minute agreement, which provided for a ‘supercommittee’ to recommend legislation to reduce the U.S. budget deficit by $1.2 trillion in the next decade.  If that failed to result in a compromise (and of course it failed, and it failed way back in November 2011), lawmakers would be subject to around $85 billion in automatic across-the-board cuts (the ‘sequestration’), half of which would affect U.S. defense spending and half of which would affect U.S. domestic spending (though the cuts to domestic spending are, well, pretty much dumb from any point of view, economic or otherwise; that was the point, however — they were designed to be a negative incentive, even though Jeffrey Sachs today argues that the discretionary spending cuts are part of some grand Faustian Obama bargain).

No one really thought at the time the agreement was incredibly robust, and Standard and Poor’s responded by actually downgrading the United States’s credit rating from ‘AAA’ to ‘AA+.’

A short-term deal on New Year’s Eve 2012 — when lawmakers considered the so-called ‘fiscal cliff’ of both the scheduled increase of U.S. income taxes from Bush-era rates back to Clinton-era rates in addition to the sequestration cuts (among other austerity measures, such as the end of a holiday on the payroll tax) — achieved a compromise on tax rates, but pushed the sequestration issue until March 1.

That brings us up through today.  Congressional Republicans and the Obama administration have reached no deal and, within the next 24 hours, $85 billion in cuts are supposed to go into effect through the U.S. federal government.

Predictably, the sequester has become an increasingly loud issues in the past week (Andrew Sullivan thinks the United States should just push forward with the sequester, U.S. Federal Reserve chairman Ben Bernanke thinks otherwise).

The problem as I see it, is that House Republicans realize both that they are the beneficiaries of:

  1. a classic hold-up situation*, insofar as a dysfunctional government hurts U.S. president Barack Obama more than it hurts 535 disparate members of Congress — that becomes more true as the executive branch has gained more power (no matter how many times the Obama administration sends poor U.S. transportation secretary Ray LaHood out in front of the cameras to protest there’s simply not enough money for the U.S. government to process airport security in a timely manner), and
  2. a game of chicken** where the Republicans start off with a steering wheel that’s already four-fifths ripped off the car, due to the increased polarization of Congress (in no small part because of ideological purity tests that threaten incumbents with primary contests) and the increased insularity of Congressional districts (in no small part because of the decennial gerrymandering of those districts).

What’s fascinating about this situation — and what makes it so interesting to me in the world of non-U.S. politics as well — is that there are plenty of hold-up situations in international politics (e.g., basically everything that’s happened in the Doha round of negotiations in the World Trade Organization since 2001) and plenty of games of chicken (e.g., basically, take your pick of every dodgy election and subsequently contested result in the past decade from Kenya to Georgia), but it’s rare to see them combined in the same policymaking frankenstorm. Continue reading What game theory tells us about the sequester showdown

First Past the Post: February 28

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East and South Asia

Haruhiko Kuroda is formally nominated as the next governor of the Bank of Japan.

Thailand and the southern Muslim rebel group Barisan Revolusi Nasional (BRN) sign their first peace accord.

Still a rocky start for South Korean president Park Guen-hye.

A death sentence for Jamaat-e-Islami leader Delawar Hossain Sayedee in Bangladesh over 1971 war crimes.

Chinese intellectuals pen an open letter for greater freedoms.

North America

U.S. secretary of state John Kerry shows off his French language skills.

Steve Clemons from The Atlantic ponders the post-Hagelian moment in U.S. politics.

Latin America / Caribbean

Venezuelan vice president Nicolás Maduro has met with ailing president Hugo Chávez.

Sub-Saharan Africa

South African finance minister Pravan Gordhan presents a tough 2013 budget.

James Verini in Nairobi considers the upcoming Kenyan election for Foreign Policy.

Former Kenyan finance minister Uhuru Kenyatta, who served under prime minister Rail Odinga, blames Odinga for the economic conditions of the past five years.

Rwandan president Paul Kagame will not seek a new term in 2017.

Europe

Five Star Movement leader Beppe Grillo calls center-left leader Pier Luigi Bersani a ‘dead man talking’ and refuses to discuss any alliance, complete with corpse-like illustration (pictured above).  Original blog post here.  [Italian]

For March Madness fans of U.S. college basketball, here’s the ‘Sweet Sistene’ bracket for choosing a new pope.

Frank Stonach is shaking up Lower Austria.

Dutch prime minister Mark Rutte calls for a eurozone exit clause.

Slovenian prime minister Janez Janša has been ousted by parliament.

Middle East and North Africa

Israeli prime minister Benjamin Netanyahu will ask president Shimon Peres for a 14-day extension to finalize coalition talks.

Former television news anchor Yair Lapid’s centrist Yesh Atid would win a new set of Israeli elections.