Thomas White Global Investing
Global Players

Global Players

November 2010

Masaaki Shirakawa, Governor, Bank of Japan

Masaaki Shirakawa

“I have pride in my job as a professional and years of career experience in the central bank. I consider my duty is to make right policy decisions and properly steer the policy-making committee.”

— Masaaki Shirakawa, 2008

Japan. The birthplace of the much loved manga, the iconic comics depicting superheroes on their daring missions. Lately though, another superhero, of sorts, has emerged, Masaaki Shirakawa, the Governor of the Bank of Japan (BoJ). His recent unusual prescriptions to save Japan from the depths of deflation have earned Shirakawa a place among Japan’s pantheon of heroic civil servants. For now.

Actually, the soft spoken Shirakawa is often recognized as being one of the first finance officials to understand and predict the repercussions of an asset bubble burst in Asia during the 1990s. In a 1993 internal report, Shirakawa intimated to BoJ officials that Japanese banks were in deep trouble and that heavy losses and a liquidity crisis were in the cards. Fifteen years later, Shirakawa was called upon to deal with yet another financial calamity.

In 2008, a storm began brewing in Japanese politics just as the global financial crisis was gathering momentum. The 61-year-old Shirakawa had been appointed deputy governor by the then Prime Minister Yasuo Fukuda and his Liberal Democratic Party. But when the opposition party vetoed two candidates for the post of governor, Fukuda was forced to bump up Shirakawa to the position. In hindsight, this proved to be a blessing in disguise.

A master’s degree holder in economics from the University of Chicago, Shirakawa walked into the job at a time when Japan’s longest economic expansion in 60 years was dragging to a standstill. Although Japan had not been exposed to the perils of subprime mortgages to the extent of the U.S. and Europe, Japan had witnessed a spiraling decline in consumer prices. While low prices are attractive to consumers, they affect corporate revenue and profits, which in turn can cause layoffs, job losses, and eventually a cut back in consumer spending. Adding to Japan’s woes, a steadily rising yen, which recently touched a 15-year all time high, had been badly affecting exporters.

Ever since Shirakawa was appointed as the BoJ governor in 2008, he has taken unprecedented steps to bring Japan back on its rails. With interest rates already at rock bottom, Shirakawa was forced to turn to quantitative easing, a process that pumps money into the economy directly, mostly by buying government bonds. Toward this end, the central bank slashed its key interest rates to zero and revealed plans to purchase additional government bonds, as well as acquire a variety of assets like real estate investment trusts, exchange-traded funds, commercial paper and corporate bonds. For their asset shopping, Shirakawa and his team set aside a cache of $60 billion. But in September 2010, Shirakawa along with Finance Minister Yoshihiko Noda, also intervened in the currency markets, the first time in six years. Almost immediately, the yen weakened by Y3 against the dollar, drawing relieved sighs from exporters.

Shirakawa has never fallen into the usual monikers of ‘hawk’ and ‘dove’ that are often attributed to financial watchdogs. “People often say doves and hawks in monetary policy but I feel sorry for birds for such easy labeling,” he quipped drily in a news conference.

Yet, the BoJ’s reactions to economic crises in the past, and now again in the present, have drawn both disapproval as well as admiration. Shirakawa has been criticized for being too optimistic about the economy, and dragging his heels in taking more aggressive steps to stave off deflation. On the other hand, the governor and his squad have lately drawn praise from Tokyo policymakers for their recent decisions, particularly the quantitative easing package. The bank “does deserve some credit for being willing to take a new tack, or at least to resurrect some crisis response policies that had expired,” says U.K. based economics research firm Capital Economics.

No doubt, Japan’s persisting economic conundrums have cost the country its ranking in the world. This year, Japan was nudged aside by China from its long held perch as the second largest economy behind the U.S. “Without ending deflation, the government’s target of 3% growth is impossible,” points out Masaaki Kanno, chief economist at JP Morgan in Tokyo.

Shirakawa, who is a birdwatcher in his spare time, is now closely watching the Japanese economy, which sports the world’s largest public debt at 200% of the GDP. “He takes a long term viewpoint. He looks to maximize long term gains even if it means pain in the short term,” says Kanno to Bloomberg. To be sure, mission Japan is not yet over. But hopefully, just like in his country’s beloved manga comics, Shirakawa will complete a daring rescue.





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