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Upper House poll trumps G-20 critique in Abe’s mind

G-20 pressure unlikely to alter monetary policy before summer election

by Tomoyuki Tachikawa

Kyodo, Bloomberg

Prime Minister Shinzo Abe may continue his pursuit of extreme monetary easing until this summer’s Upper House election, despite skepticism about whether his policy has gotten the nod from the Group of 20 countries.

In Moscow on Saturday, finance ministers and central bank chiefs of the G-20 major economies adopted a harder line against governments trying to manipulate exchange rates, in a bid to tame speculation of a global currency war while avoiding singling out Japan for criticism.

The meeting ended with a pledge from the finance leaders not to “target our exchange rates for competitive purposes.”

Japan was in the spotlight at the two-day talks, as some developed and emerging G-20 member states alleged that Abe’s government, which took office Dec. 26, has unduly pressured the Bank of Japan to ease its monetary grip and intentionally drive down the yen to boost the nation’s export-reliant economy.

The prime minister’s economic policies, centering on bold monetary easing as well as large-scale public works projects, have been dubbed “Abenomics.”

But Abe is seen continuing to push policies likely to significantly impact foreign exchange and stock markets, given the need to maintain his Cabinet’s approval ratings in the runup to this year’s House of Councilors poll so that his Liberal Democratic Party can seize a majority, analysts said.

While running the risk of Japan being denounced as a currency manipulator if he goes too far, Abe may have to continue advancing measures to improve business and consumer sentiment before the Upper House election, expected in July, to achieve his goal of controlling both chambers of the Diet, they said.

“It is obvious that Abe has called for drastic monetary easing to lower the yen and bolster stock markets by raising hope that a recovery in exports will prop up the economy,” said Masanobu Ishikawa, general manager of spot foreign exchange at Tokyo Forex & Ueda Harlow. “So far, his policy has borne fruit and the support rating for Abe’s Cabinet has been increasing. He cannot abandon Abenomics easily.”

A Kyodo News poll in late January showed that the Cabinet’s approval rate had risen to 66.7 percent from 62.0 percent the previous month. The business community appears equally satisfied with Abe’s fledgling administration, with the benchmark Nikkei 225 stock average surging more than 25 percent since mid-November.

The dollar was hovering around ¥92.50 on Friday, up sharply from ¥81 on Nov. 16, when former Prime Minister Yoshihiko Noda dissolved the powerful House of Representatives to hold the election that saw his Democratic Party of Japan unceremoniously booted from office.

The yen’s steep depreciation, however, has irritated some of the G-20 nations including Germany and South Korea, whose economies arelargely dependent on exports. Some countries have also warned that monetary easing by advanced nations such as Japan has caused large and sudden capital flows into emerging economies, rattling financial markets across the globe.

In a communique released Saturday, the G-20 members said they agreed that “excess volatility of financial flows and disorderly movements in exchange rates have adverse implications for economic and financial stability” — an indirect warning to Japan.

Nevertheless, Abe will continue his monetary easing by arguing that its purpose is to end Japan’s more than a decade of deflation — not to manipulate foreign exchange rates, said Yoshikiyo Shimamine, chief economist at Dai-ichi Life Research Institute.

“Economic policies aimed at conquering deflation have not been opposed” by the G-20, Shimamine said, adding that since there is a global consensus that monetary easing is needed to prevent prices from falling, “Abe’s government and the BOJ will promote their policies with confidence.”

In a joint statement released with the government last month, the BOJ said it had decided to conduct “open-ended” easing to attain a 2 percent inflation target at the earliest possible time.

Shimamine, however, urged policymakers not to make remarks that could prompt global finance officials to suspect that the government is trying to drive down the value of the yen and buoy stock prices ahead of the Upper House election.

“(Abe’s government) should be careful not to trigger criticism that it is eager to buy votes with money,” he warned.

In the Dec. 16 general election, the LDP gained a two-thirds majority in the Lower House with coalition partner New Komeito, returning to office after three years in opposition.

Under Article 59 of the Constitution, any bill that clears the lower chamber and is voted down by the Upper House will be passed if it is again approved with two-thirds support in the House of Representatives.

But if the LDP loses the House of Councilors poll, bulldozing legislation in this manner could be criticized by the public and would certainly be pounced on by the opposition, hampering Abe’s efforts to smoothly enact his policies in the Diet, political experts said.

A more immediate point of focus is who Abe will tap to succeed Masaaki Shirakawa as BOJ governor. Shirakawa is scheduled to step down March 19, along with his two deputy governors. If Abe’s nominee to head the central bank disappoints the markets, the yen’s appreciation could be rekindled and stock prices might start to fall before the Upper House poll, according to analysts.

Naohiko Baba, chief economist at Goldman Sachs Japan Co., said Abe needs to select someone who can demonstrate a clear road map toward attaining the central bank’s 2 percent inflation goal while carrying out necessary monetary policy measures in a timely manner.

Abe weighs BOJ ‘balance’

JIJI

Prime Minister Shinzo Abe said Saturday he will seek “an overall balance” in selecting the next Bank of Japan governor and his two deputies, hinting the top posts may be filled by people with different career backgrounds, including from the academic world.

“As we choose three (new leaders), I think we need to weigh up their overall balance,” Abe said in an interview.

The current BOJ executive, led by Gov. Masaaki Shirakawa, is scheduled to leave office March 19.

Abe has criticized the BOJ’s decision in March 2006 to end a quantitative monetary easing regime tied to the bank liquidity balance. At that time, Japan Center for Economic Research President Kazumasa Iwata and Daiwa Institute of Research Chairman Toshiro Muto, both of whom are considered candidates to succeed Shirakawa, were serving as the central bank’s deputy governors.

In connection with this, Abe said he does not necessarily mean to rule them out because of their participation in the 2006 decision. But he also stressed that the new BOJ governor must have a strong belief in the need for drastic monetary policy steps.

Separately, Shirakawa said in Moscow on Saturday that after stepping down he will study “desirable policies” to tackle challenges the world economy has been facing since the 2008 global financial crisis. Following his final participation as BOJ governor at a conference of the Group of 20 financial chiefs, Shirakawa expressed hope that he would continue to study how monetary policy should be managed, since the aftermath of the crisis lingers on.

“Each country has been undertaking reforms (based on lessons from the 2008 crisis), but they have not been completed,” Shirakawa said at a joint news conference with Finance Minister Taro Aso. “We have to contemplate what (policies are) desirable while carefully watching what is going on now and listening to a wide range of views in a humble manner.”

  • Roy Warner

    Abe’s policies are like a temporary narcotic high that will last only as long as they continue, and they can’t continue forever. I hear he’s already having intestinal troubles again, so it remains to be seen how long he himself can stay in the job.