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The Bank of Japan’s Remarkable Decade

With the departure this month of the Bank of Japan’s longest-serving governor, Haruhiko Kuroda, the BOJ has entered a new era. Thanks to Kuroda’s successes in defeating deflation and restoring economic activity, there is now light at the end of the tunnel for Japan’s chronically underperforming economy.

TOKYO – On April 8, Haruhiko Kurodastepped down after a decade as governor of the Bank of Japan – the longest governorship in the BOJ’s 142-year history. When he was appointed, the Japanese economy’s main problem was deflation: inflation had been negative, on average, for 15 years, implying that the economy was chronically performing below its potential. Moreover, many exporters were suffering from a soaring yen, which hit ¥75 per $1 in October 2011, compared to ¥124 per $1 in June 2007, just before the global financial crisis. 

From that starting point to now, Kuroda created an extraordinary legacy. After introducing unconventional monetary policies to provide massive economic stimulus, he used an inflation-targeting framework to guide and improve its scope. As a result, Japan’s deflation ended, and economic activity picked up, with actual GDP exceeding potential growth and the unemployment rate falling very low before COVID-19 hit.

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Kuroda was an unusual choice to become governor because he was not a career BOJ insider, nor did he have experience in the banking side of the Ministry of Finance (which by that point had ceded regulatory power to Financial Services Agency). In the middle of his term as the head of the Asian Development Bank, he got a call from Prime Minister Abe Shinzō to become governor of the Bank of Japan. On becoming prime minister in December 2012, Abe was looking for someone who could think outside the box. Determined to bring deflation to an end, he wanted the BOJ to adopt an inflation-targeting framework – the first of the “three arrows” comprising his economic agenda (popularly known as Abenomics). To tackle deflation and move the economy toward a 2% inflation target, he appointed Kuroda in March 2013.

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