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Deputy governor pick calls for bolder monetary easing to hit target in 2015, revised bank law

Iwata puts inflation onus on BOJ

Kyodo, Bloomberg

Kikuo Iwata, the Liberal Democratic Party-led government’s nominee for deputy governor at the Bank of Japan, on Tuesday placed the onus of achieving 2 percent inflation on the BOJ’s shoulders, calling for bolder monetary easing to reach the target within two years.

“The BOJ needs to be totally responsible for achieving 2 percent inflation in the consumer price index,” Iwata, a professor at Gakushuin University, said during a confirmation hearing before a Lower House panel.

He also said the BOJ must “further promote quantitative easing” to maintain the yen’s weakness against other major currencies and rallies in Tokyo stocks. The BOJ law, which secures the central bank’s independence, needs to be revised to attain the inflation target swiftly and smoothly, Iwata added. If the BOJ fails to achieve the goal, he said, “Resigning (from the post) would be the best way to take responsibility.”

As steps to achieve the inflation target, Iwata said the central bank should buy longer-term bonds. “At the moment the BOJ only buys debt maturing up to three years; it should buy five years and longer,” he said.

Investors are assessing how aggressive the central bank will be in countering 15 years of deflation under new leadership.

The BOJ now buys bonds, as well as exchange-traded funds and other risk assets via an asset-purchase fund targeted to reach ¥76 trillion by the end of this year.

Another BOJ deputy governor nominee, Hiroshi Nakaso, an executive director of the central bank, told the panel he will contribute to the BOJ leadership through the management of the organization, and also referred to the importance of stabilizing the financial system.

The hearings for Iwata and Nakaso followed Haruhiko Kuroda’s appearance Monday. Kuroda is the government’s nominee for BOJ governor.

Kuroda vowed to pursue bolder monetary easing, saying that achieving a 2 percent inflation target as soon as possible will be critical and that the bank must make clear it is prepared to “do anything” to arrest deflation.

The appointments of the BOJ governor and deputy governors must be approved by both chambers of the Diet. As the LDP-led ruling coalition lacks a majority in the House of Councilors, support from the main opposition force, the Democratic Party of Japan, will be essential for approval.

The DPJ has signaled it will back Kuroda, easing his passage through a split Diet.

Iwata has long urged the central bank to be responsible for preventing prices from continuously falling by setting a clear inflation target.

He also calls for revising the BOJ Law, saying it should stipulate that the central bank will manage monetary policy to achieve an inflation target set by the government.

Nakaso is known as an “internationalist” adept at global financial issues and crisis management.

  • hiroshi aketa

    How could we survive with 2 % inflation when the interest rate of Japanese banks is almost zero?

    • Long John Dickweed

      If the 2% target is achieved you don’t survive but get screwed instead. Thanks to decades of economic interventionism and idiocy, the Japanese government is in a mountain of debt that it can never pay back honestly. Inflating the debt away is much easier politically.

      Instead of screwing over its citizens, the smart thing to do would be to sell some of the $1 billion plus US Treausries to pay down the debts honestly.

      Of course this would collapse the US bond market and dollar, and the Japanese leaders with their export fetish would faint. They will be able to export the entire country soon enough with the way they are taking the yen down the toilet.