Economics 101 for BOJ Recommended as Takenaka Presses for Easing

The Bank of Japan (8301) sees protecting its own balance sheet as more important than ending deflation and spurring the world’s third-largest economy, according to the former minister who led a clean-up of the nation’s banks.

“This isn’t difficult -- it’s Economics 101,” Heizo Takenaka, 61, said in an interview in Tokyo yesterday. “They think the balance sheet is more important than Japan’s economy. That’s why they are ok with leaving deflation,” said Takenaka, who served in former Prime Minister Junichiro Koizumi’s cabinet. The BOJ’s press office declined to comment.

At 139 trillion yen ($1.7 trillion), the BOJ’s balance sheet is larger than that of the U.S. Federal Reserve as a share of the economy. Even so, its assets, which include securities used for open-market operations and those accumulated through liquidity injections and stimulus programs, have shrunk about 11 percent from a peak in 2005.

Political pressure for expanding easing was highlighted by lawmakers this month rejecting a government nominee for the BOJ’s board who some saw as lacking enthusiasm for bolder measures. Governor Masaaki Shirakawa and his officials should loosen monetary policy further at a meeting on April 27 after pledging “powerful” easing to achieve an inflation goal of 1 percent, said Takenaka, a professor of policy management at Keio University in Tokyo.

Easing Forecasts

Morgan Stanley sees a “near 100 percent probability” of more easing this month while Mizuho Securities and SMBC Nikko Securities Inc. also expect a move. BOJ policy makers added 10 trillion yen to an asset-purchase program in February, while the central bank’s key interest rate remains between zero and 0.1 percent.

Takenaka’s comments follow economists querying the consistency of the BOJ’s policies, with Goldman Sachs Group Inc. saying that February moves were “out of character” for Shirakawa and former BOJ board member Atsushi Mizuno saying this week that decisions have seemed at odds with policy makers’ own views.

Expanding easing is “better than doing nothing,” even if the BOJ doesn’t know if the measures will prove effective, Takenaka said. A failure to act may encourage alterations to the law governing the bank, increasing political influence, he said.

A March expansion of a lending program designed to boost long-term growth was an example of “ad-hoc solutions” rather than throwing a “straight ball” to counter deflation, he said.

To contact the reporters on this story: Toru Fujioka in Tokyo at; Masahiro Hidaka in 東京 at

To contact the editor responsible for this story: Paul Panckhurst at

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