The Diet on Friday approved the nomination of Haruhiko Kuroda as Bank of Japan governor and those of Kikuo Iwata and Hiroshi Nakaso for his deputy chiefs, paving the way to anticipated drastic monetary easing to invigorate the deflation-beset economy.
The House of Councilors voted for the government’s selection of Kuroda, currently president of the Asian Development Bank, along with Iwata, a Gakushuin University professor, and Nakaso, who is serving as the central bank’s executive director, despite the ruling coalition’s lack of a majority in the chamber.
As Kuroda and Iwata, strong proponents of bold credit easing, have pledged to achieve a 2 percent inflation target within two years, they are expected to act swiftly after taking office Wednesday, according to analysts.
The BOJ’s first regular Policy Board meeting under the new leadership team is scheduled from April 3 to 4, but it is possible an emergency policy meeting will also be held soon to consider additional easing measures, such as boosting purchases of government bonds with longer-term maturities, experts said.
It is likely Kuroda will “try to obtain the consensus of all Policy Board members for the BOJ to speed up the pace of monetary easing and will instruct the bank’s employees to contemplate policy options” if an extraordinary gathering is convened, said Hisashi Oda, a senior analyst at the Bank of Tokyo-Mitsubishi UFJ.
Kuroda had pledged to “do anything” he can to put an end to chronic deflation after becoming BOJ chief, indicating the bank will work closely with Prime Minister Shinzo Abe’s government to implement its economic policies, dubbed “Abenomics,” aimed at tackling a more than decade-long deflationary spiral.
But some BOJ board members are skeptical whether the 2 percent inflation goal the bank adopted in January is achievable, and are reluctant to take steps that could forcibly drive up prices, suggesting the possibility of rifts over how aggressively the BOJ should move.
Policy Board member Takahide Kiuchi, a former private sector economist, said at a news conference last month that it is desirable for prices and wages to increase “in a balanced manner” on the back of economic growth.
While growing expectations for drastic monetary easing have recently driven up stock prices and lowered the value of the yen, possible internal strife at the BOJ over policy could ruin the current positive mood in the financial markets, some experts said.
“The crux of the matter is whether the government and the BOJ will actually take appropriate action down the road,” said Yoshikiyo Shimamine, chief economist at the Dai-ichi Life Research Institute.
Current BOJ Gov. Masaaki Shirakawa will step down Tuesday, when his two deputies’ five-year terms end, rather than serving out the remainder of his own term through April 8.
Kuroda, Iwata and Nakaso were approved Thursday by Lower House, backed by Abe’s Liberal Democratic Party, its junior coalition partner, New Komeito, and some opposition groups.
The Diet, however, only allowed Kuroda to serve the remainder of Shirakawa’s term. Kuroda will leave the ADB on Monday, and will have to undergo another confirmation process in the legislature to serve a five-year term at the central bank’s helm.