February 28th, 2013
Econintersect: Loose money policy is coming to the Bank of Japan (BoY). Haruhiko Kuroda, who has been critical of the Japanese central bank a number of times over the past 15 years, has been nominated by Prime Minister Shinzo Abe to be the next governor of the BoJ. Kuroda's criticism has always been that the BoJ was too timid, too slow to loosen or too quick to tighten. Mr. Kuroda is currently president of the Asian Development Bank, has experience in the Japanese finance ministry and in academia.
The prime minister also nominated Kikuo Iwata, an economics professor at Gakushuin University in Tokyo, and Hiroshi Nakaso, currently in charge of international affairs at the BoJ, to be deputy governors.
The Financial Times says that Kuroda and his deputies are expected to aggressively expand Japan's money supply:
In office, Mr Kuroda is expected to ramp up purchases of government debt and other assets to meet the 2 per cent inflation target the BoJ adopted in January, under firm pressure from the government.
“A 2 per cent inflation target has become a global standard, and it is a landmark decision on the BoJ’s part to adopt the same target,” Mr Kuroda told a seminar in Tokyo this month.
Mr Iwata has been even more aggressive than Mr Kuroda in his calls for further easing. The 70 year-old Gakushuin University economist has urged the central bank to extend the maturity of its government-bond purchases to five years, from three, and to increase banks’ current-account balances at the BoJ from below Y50tn currently to about Y80tn.
Former students say that the professor’s theories seem to have stayed constant over the years: expand the supply of base money to promote bank lending, thus increasing the total money supply.
The central bank had already announced its intention to increase asset purchases in 2014, but Kuroda is expected to accelerate such actions. From Bloomberg:
The central bank in January announced that it will shift to open-ended asset purchases starting next year, with no additional stimulus for 2013. Currently, the central bank buys securities such as government bonds and exchange-traded funds through a fund targeted to reach 76 trillion yen ($823 billion) in assets in December 2013.
“The market’s focus is shifting to Kuroda, who is expected to do what Shirakawa couldn’t, such as buying risk assets and bonds on a larger scale,” said Kenji Yumoto, vice chairman of the Japan Research Institute in Tokyo.
Japan has had price deflation for the consumer products core (excludes food and energy) every month for four years. So meeting a 2% inflation target is not a "gimme." According to Reuters, Kuroda will include purchases of corporate bonds and exchange traded funds (ETFs), in addition to government bonds.
- Abe nominates Kuroda to run BoJ (Ben McLannahan, Financial Times, 28 February 2010)
- Abe Nominates Haruhiko Kuroda as Next Bank of Japan Governor (Toru Fujioka and Masahiro Hidaka, Bloomberg, 28 February 2013)
- RPT-UPDATE 1-Japan govt nominates Kuroda for BOJ governor (Reuters, 27 February 2013)