BOJ nom­i­nee vows swift ac­tion as or­ders data dis­ap­points

The Pak Banker - - COMPANIES/BOSS -

The Ja­pan government’s choice to lead the coun­try’s cen­tral bank promised on Mon­day to move quickly to im­ple­ment fresh mon­e­tary stim­u­lus to lift the strug­gling econ­omy, a case un­der­lined by a sur­pris­ingly sharp drop in a gauge of cap­i­tal in­vest­ment.

How­ever, Haruhiko Kuroda’s dec­la­ra­tion that “speed is im­por­tant” ap­peared to run into re­sis­tance from Bank of Ja­pan board mem­ber Koji Ishida, who in sep­a­rate com­ments voiced cau­tion against tak­ing unortho­dox steps too hastily. The di­ver­gence of opin­ion high­lights that while the nine-mem­ber board gen­er­ally agree on the need for fur­ther stim­u­lus, there are dif­fer­ing views on how best to re­vive an econ­omy that has strug­gled for con­sis­tent growth for years.

“I want to de­bate pol­icy steps with the mon­e­tary pol­icy com­mit­tee and im­ple­ment th­ese steps as soon as pos­si­ble,” Kuroda told law­mak­ers in a one-day up­per house con­fir­ma­tion hear­ing. He said he would do what ever it takes to hit the Bank of Ja­pan’s in­fla­tion tar­get of 2 per­cent. The econ­omy has rarely seen that level of in­fla­tion since the early 1990s.

Kuroda is ex­pected to be ap­proved by par­lia­ment later this week be­cause op­po­si­tion par­ties, whose sup­port is needed in the up­per house, have in­di­cated they would back him. Sup­port­ers of the more ag­gres­sive mon­e­tary pol­icy ad­vo­cated by Prime Min­is­ter Shinzo Abe can point to a 13.1 per­cent drop in core ma­chin­ery or­ders in Jan­uary from De­cem­ber as high­light­ing the need for ur­gent ac­tion.

An­a­lysts and government of­fi­cials sug­gested the much weaker than ex­pected fig­ures re­leased on Mon­day were a blip in a typ­i­cally volatile data se­ries, but they did show com­pa­nies re­mained cau­tious in their spend­ing plans. An­a­lysts had ex­pected a fall of just 2 per­cent. Ja­pan has been in de­fla­tion for most of the past two decades and fig­ures last week showed that the econ­omy edged out of its fourth re­ces­sion since 2000 in the last quar­ter of 2012.

Crit­i­cal of the BoJ ‘s grad­ual eas­ing steps un­der out­go­ing chief Masaaki Shi­rakawa, Abe last month nom­i­nated Kuroda to re­place him. Kuroda has ad­vo­cated bolder and swifter ac­tion such as buy­ing more risk as­sets and more longer­dated government debt, points he re­peated to the up­per house.

“We’re in an en­vi­ron­ment where there is lim­ited room to lower in­ter­est rates fur­ther,” Kuroda said. “That’s why it is im­por­tant to try to in­flu­ence mar­ket ex­pec­ta­tions.”

If ap­proved by par­lia­ment, Kuroda would step down next week as pres­i­dent of the Manila-based Asian Devel­op­ment Bank and take over the BoJ af­ter Shi­rakawa’s term ends on March 19. The BOJ’s next pol­icy meet­ing is due on April 3-4, with fi­nan­cial mar­kets ex­pect­ing ac­tion. “The next BOJ meet­ing un­der Mr Kuroda will ease mon­e­tary pol­icy, which prob­a­bly should be an ag­gres­sive one,” said Ak­ito Fuku­naga, chief rates strate­gist at Royal Bank of Scot­land in Tokyo.

De­spite Kuroda’s sense of ur­gency, the BoJ board has ex­pressed a va­ri­ety of views on how to move be­yond its cur­rent pol­icy of buy­ing as­sets or mak­ing loans to­tal­ing 101 tril­lion yen ($1.07 tril­lion) by the end of 2013. That in­cludes buy­ing government bonds with ma­tu­ri­ties of up to three years.

In con­trast to Kuroda’s wish to move quickly, Ishida voiced cau­tion, say­ing ma­jor changes to the cur­rent pol­icy should only be con­sid­ered af­ter a thor­ough re­view.

“Chang­ing this would be a big shift in its pol­icy frame­work and would re­quire a com­pre­hen­sive ex­am­i­na­tion of the pur­pose, means, costs and ef­fects as well as the trans­mis­sion chan­nel of mon­e­tary pol­icy,” said Ishida, con­sid­ered a mod­er­ate mem­ber of the board and who has voted with the ma­jor­ity most of the time. He was speak­ing at a news con­fer­ence af­ter meet­ing busi­ness lead­ers in Ut­sunomiya, north of Tokyo. Kuroda also said the BoJ should con­sider start­ing an open ended pol­icy of as­set buy­ing ear­lier than 2014, the sched­uled be­gin­ning date agreed at a pol­icy re­view in Jan­uary.

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