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| YOSHIKAZU TSUNO-AFP/GETTY IMAGES |
| A STEADY HAND: BOJ governor Fukui has proved deft |
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Posted Monday, April 5, 2004; 21:00 HKT
A central bank bureaucrat as a comic-book hero? That's the scenario unfolding in the current plotline of Golgo 13, a long-running manga series about a political assassin named Duke Togo. Over the past few installments, a cabal of U.S. presidential advisers (based on Condoleezza Rice and Karl Rove) has engaged in all kinds of evil and illegal scheming to ensure that Japan continues buying U.S. Treasuries to fund America's ever-expanding wars. In the latest chapter of the series, "Price Keeping Operation, Part 2," a Bank of Japan (BOJ) vice governor, representing the last uncorrupted government department, declares that he and his comrades will not buckle under nefarious foreign pressure: "We need to protect the national interest!"
Whether fighting evil in comic books or simply constructing a coherent monetary policy in real life, the idea that the BOJ was able to act in the best interests of the country was, until recently, almost laughable. No doubt Japan's central bank meant well, but under its previous governor, Masaru Hayami, it was known primarily for its inaction punctuated by occasional miscalculation, as when it choked off a nascent recovery in 2000 by prematurely raising interest rates. Hayami often insisted there was little he could do to stoke Japan's economic fires, or counteract its long struggle with deflation, once he had lowered interest rates to zero in March 2001.
But the bank's sense of helplessness ended when Toshihiko Fukui took the reins as governor just over a year ago. Scoffing at the entrenched notion that interest rates are the central banker's only weapon, Fukui stepped up or initiated a series of unorthodox monetary easing programs designed to end Japan's cycle of chronically declining prices.
Shortly after taking up his post, for example, Fukui dispelled fears of a widespread bank collapse by increasing by half the limit on the BOJ's purchases of bank stocks. And since then, he has pursued a round of inflation-inducing strategies designed to flood the system with cash: he more than doubled the target for current account deposits held by financial institutions, increased the BOJ's purchases of government bonds, and departed boldly from tradition by buying corporate bonds and asset-backed securities, instead of sticking cautiously with cash and treasuries. "Fukui has been activist and interventionist," says Shuji Shirota, an economist at Dresdner Kleinwort Wasserstein investment bank in Tokyo. "He has come up with a lot of surprises."
His desperate-times measures seem to be having an impact: consumer price deflation slowed to 0.3% last year, compared with 0.9% in 2002. What's more, Fukui is also the first BOJ governor in years who seems interested in cooperating with his governmental colleagues to create an integrated economic policy. For several years, Japan's Ministry of Finance has pursued a weak-yen strategy to aid Japanese exporters by reducing the price of their goods abroad. And unlike his Golgo 13 comic-book counterparts, Fukui has actively supported this "Price Keeping Operation." In December, he even agreed to temporarily buy about $90 billion worth of foreign bonds from the ministry, in effect giving the government more cash to buy dollars and U.S. Treasuries to keep the yen from rising against the dollar.
Still, Fukui's greatest challenges lay ahead of him—not least, deciding when to raise interest rates in an environment in which borrowers have become accustomed to free money.
If he can successfully complete the job of moving Japan from a recession-prone, deflationary economy to one with rising prices and healthy domestic demand, then he really will enter the realm of superheroes.
—With reporting by Toko Sekiguchi/Tokyo
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