The Legacy of Haruhiko Kuroda

The Legacy of Haruhiko Kuroda

On April 8, 2023, the term of Bank of Japan Governor Haruhiko Kuroda ended. And with him came the end of an entire era.

Haruhiko Kuroda has been the Bank of Japan (BoJ) governor since March 2013. When the former governor of the Asian Development Bank became governor of the Bank of Japan a decade ago, Japan was still recovering from the 2008 financial crisis and the Great East Japan Earthquake of 2011.

As central bank governor, Kuroda set out to implement a loose monetary policy to fight deflation and advocated "Abenomics." Under his leadership, the Bank of Japan began implementing a policy to increase short- and long-term asset purchases. Kuroda shook up the conservative central bank and the markets by rolling out a massive stimulus program to demonstrate his determination to reach the inflation target of 2% in around two years. During Kuroda's reign, the Bank of Japan increased its balance sheet by about 497 trillion yen ($3.7 trillion) and now owns half of the Japanese government bond (JGB) market.

As a result, Kuroda has left a mixed legacy for the Bank of Japan. Initially, Kuroda's policies were praised for boosting Japanese equities and reviving corporate sentiment. His massive stimulus has been praised for pulling the economy out of deflation, but on the other hand, it has reduced bank profits and distorted market functions through prolonged low rates. Critics also accuse Kuroda of stalling the market by introducing negative interest rates in 2016. A decision that shook markets and proved hugely unpopular with the public. As the positive effect began to fade and huge bond purchases faced restrictions, the Bank of Japan switched to an interest rate targeting policy. As a result, a restriction on long-term rates was added as part of a policy called yield curve control (YCC), which is still in force today. This policy has caused the Japanese yen to fall against other currencies.

Economists believe that although low-interest rates are really useful, keeping interest rates very low over the long term could hinder further corporate restructuring in times of global uncertainty.

Academician Kazuo Ueda replaced Haruhiko Kuroda as Governor of the Bank of Japan on April 9. Ueda was chief adviser to the Institute for Monetary and Economic Research. And given Mr. Ueda's reputation as a pragmatic theorist, some analysts say he will eventually emerge from Mr. Kuroda's shadow and chart his own path toward monetary policy normalization.

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