Business / Economy

Reflationist Seiji Adachi tapped to replace Yutaka Harada on Bank of Japan board

Bloomberg

Prime Minister Shinzo Abe has nominated economist Seiji Adachi, a known reflationist, to the Bank of Japan’s Policy Board amid growing attention over Abe’s stance on monetary easing.

Adachi, head of economic research at Marusan Securities, was tapped to replace Yutaka Harada, who likewise has advocated massive spending to reflate the economy, according to a statement distributed by a Diet committee Tuesday.

To avoid a vacancy on the board, the Diet is likely to approve the nomination before Harada ends his five-year term March 25.

Adachi wrote a book with other known reflationists on spurring prices to restore growth in the Japanese economy. The book’s authors included former BOJ Deputy Gov. Kikuo Iwata and Koichi Hamada, a member of Abe’s original brain trust of reflationists, who have provided the prime minister with advice on the nomination of Kuroda and other BOJ board members.

Current Deputy Gov. Masazumi Wakatabe and Harada also contributed to the book. The book was published in 2013, shortly before Gov. Haruhiko Kuroda launched the BOJ’s massive easing program to lift the economy out of deflation and achieve 2 percent price growth.

Adachi previously worked as an economist at Deutsche Securities Inc. and Credit Suisse AG.

The pick is under close scrutiny by BOJ watchers looking for clues to Abe’s current stance on monetary policy amid signs that achieving the inflation target is no longer at the top of his priorities.

Some 76 percent of economists expected Harada, a consistent dissenter to BOJ policy decisions, to be replaced by another like-minded reflationist, according to a Bloomberg survey.

The nomination is for one of nine seats on a board that is expected to keep policy on hold for a while. With limited policy tools and relative stability in foreign exchange rates, a majority of economists expect the BOJ’s next eventual policy step to be tightening.

Since last year, Abe has been signaling that achieving 2 percent inflation is not the be-all and end-all of his Abenomics policy platform to restore stable growth. For the first time since he returned to the premiership in late 2012, Abe last week didn’t even mention deflation in an annual speech at the start of the legislative session.

Abe has a record of sending a message to financial markets through BOJ nominations. By handpicking Kuroda in 2013, he fueled speculation that aggressive monetary easing was in the pipeline.

After almost seven years of massive easing, there are growing concerns over the side effects. Yet inflation still remains at less than half the 2 percent target agreed by the government and the BOJ in 2013.

Given the continued weakness of price growth, the bank is likely to continue its easing program. Still, unlike at the start of his easing campaign, Kuroda has pledged to balance the benefits and costs of the BOJ’s actions.

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