Tags: BOJ | bank of japan | Kuroda | Ideas

Bank of Japan Board More Open to Kuroda's Ideas Than First Thought

Tuesday, 12 March 2013 07:10 AM

Bank of Japan policymakers are more open to adopting the unorthodox policy options of the expected next governor than previously thought, minutes show, suggesting the central bank can push through bolder stimulus promptly.

After just more than a week of hearings, Prime Minister Shinzo Abe's picks for a more aggressive leadership at the central bank have likely gathered enough political support to be confirmed in their new jobs, lawmakers and media reports say.

That will meet Abe's push for unprecedented monetary policy, which along with fiscal expansion and structural reform, form the three pillars of his campaign to revive the long stagnant economy.
In parliamentary hearings on Tuesday, the government's two deputy governor nominees signaled their readiness to consider untested policy measures to beat deflation.

"We shouldn't be bound to precedents and must think with a new mindset," Hiroshi Nakaso, a nominee for deputy governor, told lawmakers.

The combination of nominee comments and minutes from the Bank of Japan's February policy review reinforced market expectations the central bank will announce more forceful stimulus when it holds its rate review next month.

Critical of the BOJ's gradual easing steps under outgoing chief Masaaki Shirakawa, Abe last month nominated aggressive policy advocate Haruhiko Kuroda, president of the Asian Development Bank, to take over after the incumbent's term ends on March 19.

He also nominated academic Kikuo Iwata, who like Kuroda suggests easing should be more aggressive, and long-term central banker Nakaso to be deputy governors.


The minutes of the February meeting show that board members were considering new ideas to reflate the economy even as Abe was deciding who to nominate for the top roles.

The ideas included cutting the 0.1 percent floor the BOJ sets on money market rates, targeting longer-dated government bonds and boosting purchases of risk assets, the minutes show.

A few members even floated the idea of combining the BOJ's asset-buying and lending program, its key monetary tool, with another market operation to buy long-term bonds — dubbed "rinban" — to make it easier to target longer-dated bonds in expanding stimulus, the minutes showed.

The ideas are similar to what Kuroda has outlined, a sign the existing BOJ board was ready to embrace changes sought by the potential new leadership.

Previously, many board members were cautious of buying longer-dated government bonds for the purpose of easing policy, for fear that would make an exit from the ultra-easy policy difficult.

The fact that board members have already been considering the ideas prescribed by Kuroda and Iwata reinforces expectations the board could move on April 3-4, the first meeting under a new leadership, to boost stimulus, sources familiar with its thinking say.

"The next steps from the BOJ are likely to be an increase in purchases of longer-term debt and possibly combining the asset program with rinban buying of JGBs," said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management.

Both Kuroda and Iwata have said buying longer-dated government debt was the most realistic option for the BOJ to expand stimulus beyond its current policy, which includes buying government bonds with a maturity of up to three years.

Nakaso signaled the need for a bolder approach in beating deflation, saying there may have been room for the BOJ under Shirakawa for more frequently and bigger-scale asset buying.

The fact that even Nakaso, regarded as the most conservative among the three nominees given his background as a career central banker, is leaning more toward the reflationary views of Kuroda underscores the radical change that may be forthcoming at the BOJ.


Still, BOJ board member Koji Ishida on Monday voiced caution against taking unorthodox steps too hastily.

And Kuroda's remark in a parliament hearing on Monday that "speed is important" in pursuing changes heightened market speculation the BOJ may launch new measures, assuming Kuroda is confirmed, soon after he takes office next week, rather than waiting for the scheduled April meeting.

That has nudged the yen to a fresh 3-1/2-year low versus the dollar, although analysts doubt whether Kuroda would opt to act so quickly and even if he does, whether he could succeed in convincing the board to call an emergency meeting.

"I don't think Kuroda mentioning the need to act with speed necessarily meant he will hold an emergency meeting," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance in Tokyo.

"Even if he decides to hold one to surprise markets, that's effective only once," he said.

Abe's ruling camp controls the lower house but lacks a majority in the upper house, so he needs the support of opposition parties to confirm his nominations.

The confirmation hearings are now over. A parliamentary vote on the nominations is expected to be held before the terms of Shirakawa and his two deputies end next week.

The biggest opposition Democratic Party decided to vote in favor of Kuroda and Nakaso, a party lawmaker told reporters after a meeting of executives on Tuesday, making it a certainty they will be approved.

The Democrats are expected to reject the choice of Iwata, partly because of comments he has made suggesting he wants to clip the independence of the central bank. However, Abe should muster enough support from other opposition parties to pass through his nomination, albeit by a close vote, according to lawmakers and Japanese media.

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Bank of Japan policymakers are more open to adopting the unorthodox policy options of the expected next governor than previously thought, minutes show, suggesting the central bank can push through bolder stimulus promptly.
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Tuesday, 12 March 2013 07:10 AM
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