Japan’s master of surprise shocks with subzero interest rates

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Haruhiko Kuroda has done it again.

The Bank of Japan governor has shocked investors by moving interest rates into negative territory — a policy under which banks essentially pay borrowers to take out money, instead of the other way around.

The move, announced Friday, is the latest in a series of surprise policy shifts by the central banker as he tries to rid Japan of deflation. To force prices higher, he has fired the bank’s stimulus bazooka again and again, showing little regard for the expectations of investors.

“Governor Kuroda has gained notoriety by changing course when it is least expected, and today’s move will only serve to cement this reputation,” said Marcel Thieliant of Capital Economics. Kuroda had previously ruled out negative interest rates.

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Since he took the BoJ’s top post in 2013, Kuroda has reshaped the central bank in his own image. The once staid institution, which had insisted it couldn’t end deflation, is now pulling every lever on the control panel in a bid to push prices higher.

Kuroda was, in many ways, the ideal man to execute an institutional makeover. He is a member of Japan’s clubby establishment but spent much of his career working on foreign finance issues, most recently as president of the Asian Development Bank.

He had been one of the vocal critics who accused the Bank of Japan of timidity before he stepped in to lead it.

The 71-year-old’s not afraid to push his colleagues, either. The vote to take interest rates into negative territory was 5-4, a fact that “re-asserts that this is his BoJ, not the technocratic non-risk taking BoJ of the past,” according to Jesper Koll of the investment firm WisdomTree Japan.

Kuroda’s views on monetary policy align closely with those of Japanese Prime Minister Shinzo Abe, who campaigned on an economic turnaround plan of aggressive monetary easing, combined with structural reforms and increased government spending.

The program, known as Abenomics, has been implemented most faithfully at the BoJ. Meanwhile, many of the promised economic reforms have stalled or been abandoned altogether.

Japan’s ‘Abenomics’ experiment is on the rocks

Kuroda, who is serving a five-year term, is not without his critics.

The BoJ’s policies have contributed to a weakening of the yen, which has caused consternation in the international community. Some critics have lobbed charges of currency manipulation in Japan’s direction as a result. Tokyo has rejected those accusations, saying its policies are aimed at the economy, not the yen.

In Japan, there is considerable skepticism over the BoJ’s plans. Many observers think the bank’s 2% inflation target is unrealistic. Significant wage increases, for example, have failed to materialize. Economic growth has been tepid.

Kuroda has not been moved by these complaints. And with interest rates now in negative territory, he may be inclined to go even further down the stimulus road.

The BoJ has “crossed the Rubicon,” Capital Economics said, and further cuts could be in the cards.

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