Japan Has $70 Billion Plan To Make China ‘Green’ With Envy

Japan’s central bank is raising the concept of economic “green shoots” to entirely new levels as it takes the lead to reduce the nation’s carbon footprint.

Governor Haruhiko Kuroda will almost surely quibble with my suggestion the Bank of Japan is driving carbon reduction efforts. Yet when you look at the modest actions afoot in government circles, Kuroda might as well own the fact that his institution will be doing politicians’ jobs on the environment, too.

Officially, Prime Minister Yoshihide Suga’s government has a 2050 goal for carbon neutrality. This is, let’s be honest, pointless. By then, the private sector will surely have created new generations of powerful and affordable batteries to shove fossil fuels aside. Surely, other renewable sources that Japan has in surplus—wind, solar, geothermal—will come into their own.

If Suga’s government wanted to be bold, for once, it would be targeting 2030. Yet when Toyota Motor, Japan’s biggest company and maker of the fabled Prius, is now lobbying to slow the transition to electric vehicles, good luck expecting Suga’s ruling Liberal Democratic Party to raise its ambitions.

Enter Kuroda’s BOJ, which this week shared details on plans to use its monetary powers of persuasion to get banks to increase green loans and investments. This includes paying slightly higher interest to banks supporting sustainable industries and practices.

To monetary purists, this sounds like mission creep gone wild. A central bank’s role, they claim, is containing inflation and ensuring basic financial stability. Yet as temperatures rise and weather becomes more chaotic and damaging to economic dynamics, the BOJ counters, climate dislocations have everything to do with growth and employment.

In certain ways, the BOJ is playing catchup. The Bank of England has been pivoting asset purchases toward industries and companies that prioritize green growth. The BOJ is trailing the European Central Bank. Here in Asia, the Monetary Authority of Singapore and People’s Bank of China are already working to build green finance ecosystems.

Yet the BOJ could be the institution best positioned to start a low-carbon revolution of sorts that lifts the third-biggest economy—and makes a huge difference in the developing world.

Kuroda isn’t some environmental radical. In fact, he’s resisting one of the most obvious moves: hand-picking green bonds in asset-buying programs. Well, at least for now. Even so, the BOJ Kuroda has run since 2013 tends to be more experimental than peers. It faces a much direr trajectory as the population ages and China, South Korea and other neighbors increase market share.

Here, a campaign championed by Junichiro Koizumi, prime minister from 2001 to 2006, may be rubbing off on Kuroda’s team. Kuroda was one of Koizumi’s top Ministry of Finance officials in the early 2000s, before Kuroda moved to Manila for an eight-year stint running the Asian Development Bank.

In the years since leaving the premiership, Koizumi had something of an epiphany. For generations, his LDP championed nuclear power above all else. A giant earthquake in 2011, and the resulting Fukushima radiation crisis, punctured the view that nuclear reactors are safe, clean and cheap.

Koizumi took on a second career of sorts warning against the influential “nuclear village,” Japan’s answer to America’s military-industrial complex. But he also makes an argument that Kuroda is now in a position to test: that Japan’s future is more about clean energy sources than cars, ships or electronics.

Right in Japan’s backyard are nearly 3 billion people in China, India, Indonesia and beyond who would prefer not to choke on the frenetic economic growth needed to achieve middle-income status. All would prefer bluer skies, less water pollution, cooler temperatures and better public health outcomes.

Really, is there an economy better equipped to invest, perfect and make billions commercializing green-growth technologies? And is there a better way for Japan to make China, well, green with envy and reclaim leadership in Asia?

Koizumi, it’s worth noting, is the father of Suga’s environment minister, Shinjiro Koizumi. And his economic argument is one the BOJ needs to run with.

Since 2013, remember, Kuroda has hoarded the bond and stock markets, pushing the BOJ’s balance sheet beyond the size of Japan’s $5 trillion economy. Despite history’s greatest monetary expansion, Japan is still battling disinflation, if not the return of actual deflation.

The missing link is evolution on the industrial side of the ledger. Years of bold talk about structural reforms to loosen labor markets, cut red tape, incentivize innovation, empower women and import more foreign talent saw little action. That put Kuroda’s team in the driver seat.

Now, the BOJ has a chance to find a higher economic gear than Tokyo even knew it had. A green one. The BOJ will start by deploying its $70 billion of foreign currency assets to flip the script, and work from there.

The good news is that Kuroda seems ready to hit the accelerator on a strategy that could change everything about Japan’s future.

“Waiting until specific guidelines and ideas are fixed will only delay our response to the urgent global challenge of dealing with climate change,” Kuroda said. He added that “it’s best to kick off with steps that are deemed important, then modify them as needed. The key is to take the approach of learning by doing.”