The Greenspan of Japan; From 1994 to 1998, Fukui was responsible for the Bank of Japan's excessively deflationary policy, which was the cause of the long slump.

Byline: Richard A. Werner, Richard Werner is investment adviser of ProfitFundCom AG and author of "Princes of the Yen" ( M.E. Sharpe ), an account of the rise of governor Fukui.

For years it has been said that Japan cannot recover without major reform: a wholesale shift from Asian-style welfare capitalism to U.S.-style stock-market capitalism. Now investors are buzzing about "recovery" despite very few real changes under Prime Minister Junichiro Koizumi. Why? Investors are not betting on Japan's political leader, but on its central-bank chief to deliver real economic growth. Toshihiko Fukui, governor of the Bank of Japan for a year now, has been hailed by the markets as a breath of fresh air, following years of misguided central-bank policies. Unlike his predecessors, we are told, Fukui knows his brief, is innovative and aspires to become the Alan Greenspan of Japan.

The idea that the economy depends more on the central-bank governor than the prime minister is not controversial. Many foreign investors never fully believed that reform was the key to Japan's future; they know that stock markets can surge irrespective of economic structure, as long as monetary policy is stimulative. It is the job of the central bank to ensure that the right amount of money is circulating so that there is stable growth without deflation or inflation. Japan is the only modern industrial economy ever to suffer from deflation, which is now in its sixth year, and many investors have blamed the Bank of Japan for failing to do its job. The result has been businesses fighting over pieces of a dwindling national income pie, as bankruptcies and unemployment rise.

Many foreign investors now believe that Fukui has stemmed the tide. He took over his job at a time when the stock market was at a 20-year low and the financial system was on the verge of a meltdown. Things have changed dramatically in the past year. Nominal GDP has picked up sharply, growing 0.9 percent in the fourth quarter of 2003. Housing starts rose by 9.4 percent in December, and passenger-car sales jumped 11.7 percent in January. Many bank stocks have soared more than 500 percent.

All thanks to Fukui? Over the past year he has impressed journalists by engaging them and avoiding gaffes of the type that made life difficult for his predecessor, Masaru Hayami. Fukui has also impressed the experts through his virtuosity in handling central-bank operations. Instead of engaging in futile debates with academic economists, Fukui simply introduced a number of new ways to put money in circulation, demonstrating that he understands what his ...