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The Bank of Japan’s Next Governor

Ichiro Suzuki

Prime Minister Fumio Kishida has asked Professor Kazuo Ueda to take over a position that will be vacated by departing Bank of Japan Governor Haruhiko Kuroda. Upon Diet approval, Professor Ueda leads the central bank next five years. Next governor assumes a challenging task of unwinding the assets the BOJ has built through aggressive quantitative easing. Professor Ueda makes a distinction to be the first BOJ governor after WWII with a Ph.D in economics. He has his degree from Massachusetts Institute of Technology, where he was a disciple of Professor Stanley Fischer, who became Governor of the Bank of Israel as well as Deputy Managing Director of the International Monetary Fund and Vice Chairman of the Federal Reserve Bank. Former Fed Chairman and Nobel laureate Ben Bernanke also studied under Professor Fischer. No one with a doctoral degree has served as governor of Japan’s central bank primarily because of the system that the country cranks out elites. Advanced degrees are not as highly regarded as elsewhere. Instead, where one attended school for bachelors’ degrees often matters a good deal more than masters or doctoral degrees. Based on a system of life time employment, one’s career development is usually looked after by his/ her employer, with internal training and and job rotation. For bright, young employees’ career development, every year the Bank of Japan sends several young men and women to graduate school overseas, mostly in the U.S. or the U.K. They are given two years so that they can finish masters program. Those who wish to finish doctoral program would have to ask for a leave of absence for the third year and beyond. Not surprisingly, few people opt to do this, mainly for financial reasons. Former BOJ governor Masaaki Shirakawa made an attempt to get his Ph.D from the University of Chicago, but gave up the plan eventually. Japan’s bureaucracy also sends young bureaucrats to study overseas, but only up to two years as well. The same is true in the business world. Shoichiro Toyoda who recently passed away was a rare Japanese CEO with a doctoral degree. Former head of Toyota Motor had his Ph.D in engineering from Tohoku University in Sendai, Japan. He always loved to be called Dr. Toyoda. He was, however, a rare exception, with a privilege of being a son of the founder of the company, to extend his study and still fit the organization that essentially recruits employees straight out of college. Corporate Japan has always had a problem with what to do with people who didn’t join the company at 22 or 23, and especially with an advanced degree holders. Management simply does not know how to take advantage of their knowledge and expertise. In the late 20th century, Corporate Japan sent a vast number of young employees to graduate schools in North America and Europe, mostly to business schools. When young men (mostly) returned home after two years with their MBA, what they experienced and learned at school mattered very little in their new life after business school. They were thrown back into a rigid system of the company’s own way of doing things. In an extreme case, it was said that insurance companies sent newly minted MBAs to local branch offices far, far away from the headquarters in Tokyo, for the purpose of de-Americanizing and re-educating them. So why did the company send them to business schools? Most likely they did so because everyone else, notably their competitors, was doing it. A chance of studying abroad is a good thing to have on their recruiting brochure. Probably they also aimed at having their young employees network with other young Japanese, especially bureaucrats, not making friends with future business leaders from around the world. Japanese management has its own way of doing business that is distinctly different from the rest of the world, based on a long-term employment practice, team orientation and shared value, close alignment with stakeholders, etc. Such virtue of Japanese management was most effective on factory floors that produce things. They have been less relevant for white collar workers, and Japan has never been known for productivity of white collar professionals. Since the beginning of the age of globalization in the late 20th century, lack of fit between Japanese management and white collar professionals became more pronounced. Frameworks of management that were internally developed were handed over from one generation to another in a tacit fashion. This made them fail to keep up with changes in management science in the age of globalization. While value of MBAs has often been questioned in the U.S. and elsewhere, what is taught at business school is still blended with internal practices at a variety of corporations in North America and Europe, and business schools are making fierce efforts to keep up with changing times. There is a reasonable chance that mistreatment of academic degrees has something to do with Corporate Japan’s retreat in the 21st century, especially outside of factory floors. The Bank of Japan definitely sets itself apart from private sector Corporate Japan. Without a legion of Ph.Ds, the BOJ still appears to be doing fine, in comparison to other major central banks. They crank out quality research papers. That said, with new Governor Ueda, the BOJ might try to push itself to be more aligned with others in order to stay as a respected member in the world of central banks.

About the author: Mr. Suzuki is a retired banking executive based in Tokyo, Japan.

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