MONEY FOCUS: Better Wealth Effect Expected With New BOJ Chief

TOKYO (NQN)--Stocks rose and the yen fell in Tokyo on Monday, in response to reports that candidates for the Bank of Japan's top positions favor reflationary measures, which promote moderate inflation.

The three appointees will be responsible for steering Japan's monetary policy.

Haruhiko Kuroda, the president of the Asian Development Bank, is said to be tipped as the next BOJ governor, while Kikuo Iwata, a professor of economics at Gakushuin University, will likely be chosen as one of the BOJ's deputy governors.

Market participants are saying that Prime Minister Shinzo Abe is apparently thinking about choosing them for the positions because his aim is to boost the wealth effect in line with rises in stock and land prices.

"Raising the wealth effect is one of the few means to quickly achieve the 2% inflation target," said Hidenori Suezawa, chief bond strategist at SMBC Nikko Securities Inc. "The BOJ will probably start buying risk assets aggressively under the new leadership."

Meanwhile, few people know that Iwata, who strongly supports reflationary measures, is also an expert on the economics of real estate. In a book he wrote, Iwata argues that the land-to-home-size ratio in central Tokyo needs to be eased to encourage urban redevelopment. Iwata also wrote that the fixed asset tax imposed on buildings should be eliminated and that public works spending is necessary to keep Tokyo's central area and the peripheral road network in good order. Many of these arguments are not expected to be reflected in government policy.

Investors are welcoming the prospective new BOJ chief even before his official announcement and are closely watching how the central bank's monetary policy will develop. In the meantime, market players generally believe that the BOJ has only limited measures left to pull Japan's economy out of deflation.

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