Too Long in Exile: ADB's Kuroda Next BoJ Guv'nor?

♠ Posted by Emmanuel in at 2/25/2013 07:50:00 AM
It is curious that Western financial new media is finally paying attention to Asian Development Bank President Haruhiko Kuroda. Despite being the head of the most prominent regional lender in our part of the world, he has so far toiled in relative obscurity outside Asia. How obscure is he? His Wikipedia entry consists of two sentences despite being the ADB chief since 2005 [!] Talk about the stereotypical faceless Asian bureaucrat and you may have his photo in there somewhere.

Still, he is now being portrayed as the front-runner in becoming the next Bank of Japan chief since his views are similar to those of PM Shinzo Abe. Besides, he is said to command the support of the opposition DPJ as well, paving the way for his nomination. Kuroda is quite Asian in the sense that he does not hesitate from actively intervening in the markets if the situation calls for it:
As Japan's top financial diplomat from 1999 to 2003, he aggressively intervened in the exchange-rate market to weaken the yen to support the country's export-reliant economy, a sign he will be keen to keep any sharp yen rises in check. He has called for the BOJ to achieve its 2 percent inflation target in two years by pumping money into the economy through unorthodox steps, such as expanding government bond purchases and buying shares. Inflation in Japan has rarely reached 2 percent since the early 1990s.
Ironically, Kuroda is believed by many in the ruling LDP to be ideal for the job precisely because he has spent so much time cottoning up in absentia to the movers and shakers of Asia and beyond as ADB president. Despite gaining next to no attention elsewhere, rest assured that the Manila-based lender commands considerable clout in the Pacific Rim. Quoting PM Abe:
“(We want) someone who can articulate (Japan’s policy) in the inner circle of international finance and win understanding (from foreign countries),” he said. “Someone who can use theory to counter criticism against monetary policy is needed.”
...and here:
Mr. Kuroda’s global experience — as vice minister for international affairs at Japan’s powerful Finance Ministry from 1999 to 2003, and as president of the Manila-based Asian Development Bank starting in 2005 — could also help Tokyo navigate foreign criticism that its monetary policies are intended to weaken the yen to give Japanese exporters a competitive edge.
I ultimately believe that Japan will be aiming to weaken its currency regardless of who takes the job of BoJ governor; it's just that they believe the diplomatically assured Kuroda will be more able than his putative competitors to smooth ruffled feathers. See, for instance, the Koreans complaining about Japan re-engaging in currency war by using unprecedented measures to reflate the Japanese economy.

There is, however, a catch: Japan's grip on the Asian Development Bank has actually increased in recent years despite its fading economic fortunes. Together with the United States, Japan is co-largest shareholder in the institution, but Japanese officials like Kuroda are far more involved in its day-to-day operations. Moreover, China has made limited inroads at the ADB despite surpassing Japan as the region's largest economy. In no small part, Japanese regional influence is strongly conditioned on being able to choose the bigwigs at the ADB. In turn, Kuroda's stewardship of the ADB is believed to be a decisive factor as to why Japan's sway over it remains strong. Pulling him out midway through his second five-year term as ADB president may not bode so well for Japanese influence at the institution:
Abe advisers say Mr. Kuroda's main weakness is his apparent indispensability in his current position—president of the Asian Development Bank, a post he has held since 2005. He is less than two years into his five-year term.

Some Japanese officials worry that if Mr. Kuroda leaves early for the BOJ slot, Japan risks losing the perch it has controlled since the founding of the Manila-based institution in 1966. For Japanese finance officials, the ADB is Japan's equivalent of the World Bank for the U.S. or the International Monetary Fund for Europe—an international financial institution they expect to run, a platform for global influence. Losing the ADB for Japan would be a blow, especially at time of growing insecurity about the country's diminished standing in the region. 
I simply do not think that erosion of Japanese influence at the ADB will happen overnight even if Kuroda is pulled out in a last-ditch effort to reflate Japan's economy. It will remain the institution's top shareholder and Japanese officials will still hold key positions. On the other hand, if Kuroda's successor proves unpopular, you never know if others can muscle in on turf the Japanese have long held to be their own.

2/27 UPDATE: The deed is done. Kuroda has been nominated to succeed Shirikawa.