Japanese Prime Minister Shinzo Abe nominated an advocate of aggressive policy action to head the Bank of Japan (BOJ), challenging the opposition to back his push for radical action as officials warned a nascent economic upturn could easily be derailed.
By choosing Asian Development Bank president Haruhiko Kuroda to take over at the central bank, Abe is looking to deliver on an election pledge of overhauling monetary policy to revive the economy after nearly two decades of mild deflation and lackluster growth.
“The new BOJ needs to accelerate its pace of asset accumulation and extend the maturities of government debt that it is buying,” said Masayuki Kichikawa, chief Japan economist at Bank of America Merrill Lynch.
“By strengthening monetary easing, the BOJ may be able to stabilize the yen exchange rate. Then we will begin to see some positive impact on consumer prices from next year,” Kichikawa said.
Academic Kikuo Iwata, who supports unconventional monetary policy, and Bank of Japan official Hiroshi Nakaso, who has hands-on knowledge of the bank’s inner workings, were nominated as BOJ deputy governors yesterday.
Abe has already successfully pushed for changes at the central bank, which in January doubled its inflation target to 2 percent and agreed to an open-ended asset buying program from next year, and the new leadership team is expected to push for even more aggressive action.
The nominations were no surprise to investors, having been well flagged recently, and so there was little market reaction.
The three men need to be approved by both houses of parliament, which will vet them in coming days. Abe does not have a majority in the upper house, and so needs opposition support for his central bank picks to take office next month.
Soon after the nominations were announced, the challenge facing the three was laid out as Japan’s finance minister and a BOJ board member both said that despite positive signs, a recovery in the world’s third-largest economy was by no means certain.
Japan’s economy has contracted for the past three quarters, but there have been some signs of life in recent data, including consecutive rises in factory output and signs of a pick-up in the export engine.
A major factor behind hopes of the recovery has been the sharp fall in the yen against the US dollar to near three-year lows last month, which was driven by Abe’s promises of radical fiscal and monetary stimulus.
Japanaese Minister of Finance Taro Aso said he was keeping a close eye on the yen, and a Bank of Japan board member said there was uncertainty that the economy would make a full-fledged recovery.
“We will continue to monitor currency moves and make sure the economy recovers by encouraging private investment, jobs growth and an expansion in wages,” Aso told parliament.
Central bank board member Takahide Kiuchi told business leaders that future stimulus would most likely be through expanding the bank’s current asset-buying and lending program, although other measures being proposed in markets, such as buying riskier assets, could be examined.
“We will strive to achieve our new target, including through taking additional easing steps boldly when necessary,” said Kiuchi, who was one of two board members to vote against adopting the 2 percent inflation target in January.
Kuroda, 68, would replace Bank of Japan Governor Masaaki Shirakawa, 63, who is due to leave office on March 19.