Being unable to fill the top job at the central bank for three weeks during a global credit crisis doesn’t exactly inspire confidence. So the news that the Bank of Japan has finally appointed a new governor, Masaaki Shirakawa “should give a great deal of relief to the market”, as one economist said.
The first leadership vacuum at the Bank in eight decades was due to wrangling between the government and the opposition, which controls the upper house and had rejected two previous suggestions.
Conventional wisdom posits that Shirakawa may have to cut interest rates soon. But there’s no sign of the imminent recession some fear, said Capital Economics. The latest quarterly Tankan survey shows that confidence among large manufacturers has deteriorated thanks to “powerful headwinds” from the US slowdown and high commodity prices, but non-manufacturers are holding up quite well and firms continue to report labour shortages.
Along with rising incomes, a tight labour market bodes well for consumer spending, which has made a solid start to the year, rising by 0.4% in January and 1.1% in February after adjusting for inflation. Housebuilding is on an upward trend, and its sustained recovery should add as much as 0.5% to GDP growth this year, helping to offset slowing exports. All in all, Japan “remains on course to beat the markets’ low expectations”.