BOJ should cede right to set inflation target: Abe adviser

Bloomberg

The government should be the entity that sets the nation’s inflation target and should hold the Bank of Japan governor accountable if the goal is missed, according to a former aide and economic adviser to opposition leader Shinzo Abe.

“The governor should be made to appear in the Diet or write an open letter to explain why a target hasn’t been met, as is the case in Britain,” Yoichi Takahashi, a ex-Finance Ministry official and aide to Abe during his 2006-2007 prime ministership, said in an interview Tuesday.

“There’s no need to go as far as having a provision to fire the governor.”

The views of Takahashi, who is now a professor at Tokyo’s Kaetsu University, will take on greater significance if Abe and his Liberal Democratic Party win the Dec. 16 Lower House election. Abe, who leads in opinion polls, advocates unlimited monetary easing to achieve a price target of as much as 3 percent to boost growth in a contracting economy.

Abe may adopt a less aggressive tone toward the BOJ should he succeed in becoming prime minister for a second time, Takahashi said.

“What he says now as the head of an opposition party is irrelevant,” said Takahashi, who says he still speaks to Abe regularly and that he has advised him on monetary policy for about 12 years.

“I don’t think he will say these things if he becomes prime minister.”

Since setting an inflation target of 1 percent on Feb. 14, BOJ Gov. Masaaki Shirakawa has attended the Diet at least 24 times, according to the central bank’s website. Consumer prices fell 0.1 percent in September, a fifth monthly decline, and economists surveyed by Bloomberg News forecast that October will have logged a further decline.

The BOJ should expand the monetary base by as much as ¥60 trillion ($733 billion), which would weaken the yen to around 100 against the dollar within a year, Takahashi said. Such a move could produce an inflation rate of 1 percent to 2 percent, he said.

Monetary easing should be carried out with the “simplest method” of buying Japanese government bonds, Takahashi said, adding he has discussed the idea of buying foreign bonds with Abe, without providing further details.

The nation’s monetary base, defined as bank notes and coins in circulation and current account deposits at the BOJ, was ¥12.8 billion as of Oct. 31, according to BOJ data. The government taking office after next month’s election will pick candidates for the bank’s top three posts. Shirakawa, whom politicians have criticized for failing to end more than a decade of deflation, finishes his five-year term on April 8. Shirakawa’s deputies Hirohide Yamaguchi and Kiyohiko Nishimura leave the BOJ in March.

“It doesn’t matter who becomes governor if the Bank of Japan Law is changed to force the bank to keep to targets set by the government,” Takahashi said.

Warning from the board

Kyodo
KUMAMOTO

Bank of Japan Policy Board member Sayuri Shirai warned Thursday of downside risks for the economy, citing such factors as uncertainty overseas and the planned sales tax hike.

“While both upside and downside risks exist, I personally assess the downside risks as greater,” she said in a speech in the city of Kumamoto, also touching on a possible delay in efforts to strengthen the economy.

On the outlook for prices, she said companies may be cautious about increasing prices of their products and services even if economic conditions improve.

“If firms and households increasingly expect the pace of price increases to remain slow based on price behavior in the recent and more distant past, downward pressure may be exerted on both actual prices and wages,” she said.

She said Japan faces various structural problems, including an aging population that has contributed to the long-term slowing of economic growth and depressed prices, adding that structural reforms are needed to boost growth and productivity.

Shirai warned structural problems may persist and “cause long-standing sluggish domestic demand” if firms move slowly on their entry into emerging and promising industries, adding that Japanese companies can take the lead in such areas as robotics, medical treatment and biotechnology.