Monday, March 4, 2013
DJ: Kuroda Vows To Do 'Everything Possible' To Beat Deflation
TOKYO--The Japanese government's pick to head the Bank of Japan pledged to do "everything possible" to overcome deflation--including buying more government debt--echoing the calls for more action from the central bank that put Prime Minister Shinzo Abe in office and pushed down the yen.
In a clear departure from the BOJ's previous stance that monetary policy alone can't reverse price falls, Haruhiko Kuroda, currently president of the Asian Development Bank, also said responsibility for achieving the BOJ's newly adopted 2% inflation target "lies with the central bank."
With Mr. Kuroda's receptiveness toward strong action already well-established, the question on most minds is just how aggressively he would act to end the nation's two decades of economic stagnation and 15 years of deflation. If approved by parliament, his first policy board meeting will be on April 3-4.
"If I were appointed as the governor ... I would do everything possible to get out of deflation," Mr. Kuroda told a confirmation hearing in parliament.
"I believe that (the BOJ) is not doing enough in terms of the size of its asset purchases or the range of assets being bought," he added.
With its policy rate already near zero, the BOJ has committed to buying Y101 trillion of assets--mainly Japanese government bonds--by the end of 2013 in a bid to end the deflation that has been a drag on economic growth.
Mr. Kuroda told the hearing that there was no need for the BOJ to limit its JGB purchases under its asset program to those with remaining maturities of under three years.
"The most natural way to expand monetary easing would be (for the central bank) to increase its government bond purchases or buy government securities with longer maturities," Mr. Kuroda said.
Mr. Kuroda also said it is "very possible" for the bank to start its "open-ended" asset buying program sooner than January 2014 as is currently scheduled. Along with the 2% inflation target, the BOJ in January decided to introduce the measure, which would amount to the bank buying around Y13 trillion of assets every month.
Mr. Abe won a general election in December on a platform calling for further BOJ easing, saying that the policies adopted under current Gov. Masaaki Shirakawa have been inadequate. In January, he managed to get the central bank to commit to the inflation target, and last week, nominated Mr. Kuroda, a known critic of the BOJ as its next governor.
In addition to Mr. Kuroda, Mr. Abe's Cabinet has nominated academic Kikuo Iwata--also a harsh critic of past BOJ policies--as one of his two deputies. Hiroshi Nakaso, a senior BOJ official in charge of international affairs, was picked as the other deputy.
The dollar weakened against the yen on Monday after Mr. Kuroda's remarks as market participants didn't see what he said as containing anything new to push the Japanese currency down.
Both Messrs. Kuroda and Iwata have said the 2% inflation target is achievable in around two years by increasing and diversifying the BOJ's asset purchases.
In explaining the need for more JGB buying, Mr. Kuroda said he might consider scrapping the bank's self-imposed rule to limit the value of its JGB holdings at or below that of bank notes in circulation. The rule is meant to reassure markets that the central bank would not monetize Japan's debt, a perception that could undermine confidence in its fiscal policy and lead to spikes in interest rates.
Mr. Kuroda also hinted he might call for increasing the amount of riskier assets the bank buys, such as corporate debt and exchange-traded stock funds, noting that the BOJ in the past had purchased shares in individual firms.
But even if Mr. Kuroda were to take the helm at the BOJ, it won't mean the BOJ will automatically take further measures to meet the 2% price target, an ambitious goal given that the bank only sees a 0.9% price rise in the fiscal year starting April 2014.
The governor and the two deputies are part of a nine-member policy board, where decisions are made by a vote. The minutes from recent board meetings show that at least two members have been opposed to the 2% inflation target, saying that it is unrealistic.
In an apparent nod to persistent concerns by other nations that Japan was seeking to depreciate the yen through monetary easing, Mr. Kuroda, formerly Japan's top currency official, told the hearing that taking action on foreign exchange was not part of the BOJ's goal.
He said it would be "difficult" for the bank to act on a proposal by some politicians that the BOJ buy foreign-currency denominated bonds to weaken the yen.
Mr. Abe, in making his choice for the BOJ governor, said the candidate needed to be able to communicate with the so-called "currency mafia" of officials and academics versed in foreign exchange policy, to explain Japan's policy.