Bank of Japan deputy governor nominee, Masazumi Wakatabe, staked out an aggressive position in front of a Lower House committee on Monday, stating that “there are no limits to monetary policy.”
His comments stood in stark contrast to his future co-worker, deputy governor nominee Masayoshi Amamiya, who instead stressed that monetary policy must also take into consideration financial stability.
Their differences foreshadow a looming battle within the central bank’s Policy Board over how and when to exit one of modern history’s greatest monetary experiments.
“In order to ensure we stably achieve 2 percent inflation we need to have an overshoot commitment,” said Wakatabe. “It is unthinkable that we would withdraw stimulus immediately as soon as we hit 2 percent inflation.”
“I want to evaluate whether our policy is sufficient. If there is a necessity I will also propose additional easing measures,” he added.
The two nominees are an odd couple in almost every sense. Wakatabe holds a doctorate in economics and has spent his career in academia, while Amamiya has earned the nickname “Mr. BOJ,” reflecting his lengthy career and importance at the bank.
The governor and two deputy governors round out the nine-member policy board who determine Japanese monetary policy.
While Amamiya stated his clear support for Gov. Haruhiko Kuroda’s monetary easing, his speech also included multiple references to the importance of stability in the banking system and a clear statement that the BOJ has a “dual mandate of price and financial stability.”
“Prices are not falling and we are coming out of deflation. While we haven’t yet reached the 2 percent inflation target, Japan’s economy is moving toward the goal,” said Amamiya.
Fluent in English, Wakatabe has published extensively for both academic journals and media outlets clearly outlining his support for aggressive monetary easing and fiscal spending as a way to escape deflation.
Since 2014 he has written dozens of articles for Forbes magazine with headlines such as “The Bank of Japan May Not Reach 2% Inflation Target, But That’s No Reason To Change Monetary Policy,” and “Why The Fear of a Fiscal Crisis in Japan is Overblown.”
Watching the BOJ deputy governors will also be important as it remains conceivable that Kuroda, now 73, may not serve out his full five-year term.
For the time being Kuroda’s influence on the board may overpower Wakatabe’s aggressive nature. In particular the new appointments are unlikely to shift the policy board’s equilibrium, since the two outgoing deputy governors were also split among similar ideological lines.
“Although Wakatabe might propose additional easing to fight the recent yen appreciation trend, the BOJ’s monetary policy regime and its direction toward normalization would not be changed as long as Kuroda and Amamiya control the policy, in my view,” said Daiju Aoki, Chief Economist at UBS Securities Japan Co., Ltd.
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