When Japanese Prime Minister Shinzo Abe nominated Haruhiko Kuroda to a second term as governor of the Bank of Japan, he gave the central banker a gift that might hold the key to policy over the next five years.
Far from simply pushing the BOJ toward further easing, Mr Abe has provided Mr Kuroda with room to manoeuvre should he need to execute a policy shift - in either direction. He did so by nominating two new deputies, one of whom has Cardinal Richelieu-like qualities that could prove very useful in Japan's uncertain economic environment.
In the short term, the BOJ's pedal-to-the-metal monetary policy is certainly justified, partly to contain the yen. Yet it stands out from its G7 peers in having no exit strategy. The bank will not even entertain a discussion about how or in what order it might put away its many stimulus tools, or even what conditions might warrant a discussion.
The silence is unfortunate, because it prevents the bank from acknowledging the progress that it has made in reviving Japan's economy and getting inflation at least some way toward its 2 per cent target. There's a long way to go, but don't let that obscure a critical point: Few people talk about a deflationary spiral in Japan anymore.
If things continue on their present path, at some point Mr Kuroda will need to pivot, and there may well be dissension within and without. That is where his new Richelieu, Masayoshi Amamiya, comes in. (Another analogy might be Sir Humphrey Appleby, the fictional head of the civil service in the BBC series Yes, Prime Minister).
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Although Mr Amamiya is little known outside the salons of central banking, his influence is hard to overstate. Known as "Mr BOJ", Mr Amamiya ran both the bank's monetary affairs group and markets division, a rare combination of experience drafting policy and riding shotgun on investors' reaction to it. His unofficial job will be to have Mr Kuroda's back.
Most attention has mistakenly been focused on the other new deputy governor, Masazumi Wakatabe, a professor dubbed a "reflationist". In the Japanese context, where monetary policy is already uber-loose, this translates as favoring pumping still more money into the economy. But Mr Wakatabe merely succeeds another reflationist, Kikuo Iwata, who is stepping down.
That is why the real attention should be on Mr Amamiya. Behind the scenes, he has spent decades at the bank, shaping and implementing policies based on guidance from above. No doubt he's learned a trick or two and has a huge rolodex of business cards.
As Toru Fujioka and three Bloomberg News colleagues wrote in a 2016 profile, Mr Amamiya has served governors who have taken very different approaches to economic cycles. Mr Kuroda is but his latest patron. Pragmatism, rather than reflation or monetarism or anything else, has been his trademark.
After a series of contentious votes on quantitative easing, Mr Kuroda opted for a strategic rethink. Guess who he turned to? The review shifted policy away from simply scooping up enormous amounts of bonds. The new framework seeks to spend only what’s required to keep the 10-year government yield around zero. Sometimes purchases can be dialled up, sometimes down.
The appointments of Mr Amamiya and Mr Wakatabe - among the worst-kept secrets in Japan, according to Bloomberg writers Toru Fujioka and Masahiro Hidaka - provide stability for the world’s third-largest economy and mean aggressive monetary stimulus will stay in place for now. Mr Kuroda also offers global continuity in a year of transition for other central banks, with Jerome Powell newly installed at the helm of the Federal Reserve and People’s Bank of China chief Zhou Xiaochuan thought likely to step down.
“The choices point to continuity in policy, with an implicit message that Japan will do what it takes to reflate the economy, even as other major central banks start to withdraw stimulus," Bloomberg Economics’ Yuki Masujima wrote.
But if Mr Kuroda needs to alter course again, you can bet Mr Amamiya will be the second-most important person in the room - at least.
Mr Amamiya considered a career as a classical pianist and still plays regularly. The notes he hits in the next few years will say a lot about Japan's trajectory.
Given the country's reputation as a laboratory, it will say a lot about the direction of the world economy, too.
Bloomberg
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One-off Test v Afghanistan:
Nov 27-Dec 1: Blundstone Arena, Hobart
The Ashes v England:
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1 The kind of water athletes drink is important. Gwilym Hooson, a 28-year-old British performer who is currently recovering from knee surgery, found that out when the company was still in Studio City, training for 12 hours a day. “The physio team was like: ‘Why is everyone getting cramps?’ And then they realised we had to add salt and sugar to the water,” he says.
2 A little chocolate is a good thing. “It’s emergency energy,” says Craig Paul Smith, La Perle’s head coach and former Cirque du Soleil performer, gesturing to an almost-empty open box of mini chocolate bars on his desk backstage.
3 Take chances, says Young, who has worked all over the world, including most recently at Dragone’s show in China. “Every time we go out of our comfort zone, we learn a lot about ourselves,” she says.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
How to apply for a drone permit
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