Signaling a new era for the central bank, the nominee to be its next governor, Haruhiko Kuroda, on Monday castigated the BOJ for failing to pursue an effective course of quantitative easing and vowed to do “everything possible” to end 15 years of deflation.
Asked to set an official timetable to achieve a 2 percent inflation target, the 68-year-old head of the Asian Development Bank declined, but said he would have “two years” in mind if endorsed by the Diet as the new governor.
“The BOJ should implement bold credit-easing measures and achieve the 2 percent target as soon as possible,” he told a hearing at the Diet.
“I’m convinced it’s a mission given to the BOJ,” said Kuroda, a former Finance Ministry official.
Current BOJ Gov. Masaaki Shirakawa, who has long maintained that the BOJ has taken the boldest quantitative-easing steps among advanced countries, has blamed sluggish demand in the shrinking private sector, rather than the lack of aggressive monetary policies, as the primary reason for Japan’s persistent deflation over the past 15 years.
But during the hearing at the Lower House, Kuroda bluntly stated the BOJ should be held responsible for failing to stop price erosion.
“I believe the central bank should be responsible for pulling (the country) out of deflation,” Kuroda told the Diet session.
“Particularly after the Lehman shock (in 2008), the central banks of the United States and Europe have actively taken credit-easing measures, but Japan hasn’t,” Kuroda said.
He said he would propose that the BOJ buy longer-term government bonds as well as corporate bonds and exchange-traded funds.
The BOJ is most likely to increase its purchases of longer-term government bonds, such as 10-year bonds, he said.
“There is no doubt (the BOJ) will consider effects on markets when it will buy (various) risk assets,” Kuroda said.
Meanwhile, he said he would oppose calls for the BOJ to directly purchase bonds from the government to finance snowballing government debt, which could spark fears of hyperinflation and financial crisis among market players.
He also said he opposes buying foreign bonds because it would be regarded as intervening to devalue the yen, which is not justified under international rules unless the value deviates widely from economic fundamentals.
Shirakawa, who is stepping down on March 19, has often argued the BOJ has led the world in taking aggressive easing measures, thereby raising the ratio of the country’s monetary base to its gross domestic product to the highest level — now 27 percent — among developed countries.
Still, major banks hold huge sums in deposits, with little use to the private sector. It is the lack of demand in the private sector, not financial policies, that is the root cause of the deflation, Shirakawa has argued.
But, siding with Prime Minister Shinzo Abe and other politicians, Kuroda blames the BOJ for failing to pull the country out of deflation as well as the country’s decade-old economic slump.
Asked repeatedly by lawmakers Monday whether the Bank of Japan Law should be revised to limit the BOJ’s independence, Kuroda replied it was up to the Diet to decide.
Many lawmakers have argued the law should be revised to allow the government to dismiss the BOJ governor if the central bank fails to achieve an agreed-upon inflation target.
In January, bowing to persistent pressure from Abe, the central bank agreed to officially introduce a 2 percent inflation target for consumer prices.
Economists say the target may be unrealistic: The inflation rate even at the height of the bubble years of the late 1980s and 1990s never hit that level. Still, Kuroda is convinced the BOJ can reach the target under his leadership.
But he declined to give a clear answer when asked if he would step down if he falls short.
“I will try my utmost efforts, so I’m not thinking about what to do if I fail,” he said.
The Diet plans to have another hearing for two vice governor nominees — Gakushuin University professor Kikuo Iwata, 70, and BOJ Executive Director Hiroshi Nakaso, 59 — on Tuesday.
The Lower and Upper houses plan to hold a vote on whether to endorse the three on March 14 and 15.
The Bank of Japan has promoted Shigeki Kushida, manager of the central bank’s branch in Nagoya, to executive director, Finance Minister Taro Aso said Monday.
The appointment of Kushida took effect Sunday for a four-year term. He replaced Hideo Hayakawa, who stepped down Saturday, when his term ended.
Kushida will concurrently serve as head of the Nagoya branch before the post is taken over by Atsushi Miyanoya, director general of the BOJ’s Financial System and Bank Examination Department, on March 18. The BOJ executive director is appointed by the finance minister on the Policy Board’s endorsement.
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