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Analysts From Japan’s 24 Primary Dealers Comment on Shirakawa

Analysts from the 24 primary dealers in the Japanese government bond market comment on Bank of Japan Governor Masaaki Shirakawa’s performance, in addition to Japan’s struggle with deflation and the power and limitations of monetary policy.

Koji Shimamoto, Tokyo-based chief strategist at BNP Paribas Securities Japan Ltd., a unit of France’s largest bank:

“The yen has stayed high before and after the quake. Globally, many nations implemented a policy mix of fiscal consolidation and monetary easing, but Japan was delayed in taking that action. That has caused a unilateral gain in the yen and has deepened deflation in Japan. Because of that, I agree with the view that Japan’s economy stagnated relative to other nations even before the earthquake with the BOJ’s delay.”

Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo:

Compared with the Federal Reserve’s $600 billion program, “the amount of bonds the BOJ is buying is small. Even though the Fed took bold action in a short period of time, the U.S. economy isn’t suffering from inflation and is on a recovery track. Given that lesson, there’s a low probability that Japanese inflation or bond yields will spike even if the BOJ takes a similar step.”

Naoki Iizuka, a senior economist at Mizuho Securities Co. in Tokyo.

“Before the earthquake, the impression was that the BOJ repeatedly refused to move until it was finally forced to expand stimulus by the market and under government pressure. The BOJ looked like it was behind the curve.”

“This impression flipped after the earthquake; the BOJ has been very swift in responding to the disaster. Its expansion of monetary stimulus on March 14 defied market expectations.”

Mari Iwashita, chief market economist at SMBC Nikko Securities Inc. in Tokyo:

“Quantitative easing itself cannot end deflation. I agree with the argument that Japan’s deflation is rooted in the medium-to-long-term structural problems -- an aging population with a falling birthrate and low productivity -- not because Japan’s monetary stimulus has been smaller than that of the U.S.”

Susumu Kato, chief economist for Japan at Credit Agricole CIB and CLSA in Tokyo:

“I think Shirakawa should have pushed through somewhat bolder macro policy. In terms of his performance, he is a very orthodox central bank governor. Market participants feel that his actions are a bit underwhelming, compared with the European Central Bank’s so-called non-standard measures or what (Federal Reserve Chairman Ben) Bernanke has been doing.”

Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo and a former BOJ official:

“When a central bank takes on sole responsibility for supporting the economy, the government loses its fiscal discipline and expectations grow for policies that will only devalue the currency. The BOJ has repeatedly defended that line of underwriting debt and inflation targeting because it’s the currency’s watchdog.”

Masaaki Kanno, former colleague of Shirakawa’s at the BOJ and now chief Japan economist at JPMorgan Chase & Co. in Tokyo:

“The BOJ’s done everything it can. There are so many things that need to be done to promote growth, but you can’t expect monetary policy to do that. What we really need is more from the government, like deregulation and tax reform. People are expecting too much from monetary policy.”

Hiromichi Shirakawa, chief Japan economist at Credit Suisse in Tokyo and a former BOJ official:

“The BOJ’s policy mistakes began well before Governor Shirakawa took office. The BOJ is now being forced to clean up that mess. There are no quick ways to correct those mistakes, and this makes it difficult to say whether Governor Shirakawa’s policy management has been sufficient or not.”

Takehiro Sato, chief Japan economist at Morgan Stanley MUFG Securities Co. in Tokyo:

“In the U.S. and Europe, central banks have taken policy measures to expand their balance sheets, and their positive effects have been noted.”

“Shirakawa holds the view of the Bank of International Settlements, which is that it’s important to maintain a tightening bias because asset bubbles need to be avoided.”

Takuji Aida, senior economist at UBS Securities Japan Ltd. in Tokyo:

“People might say that the Bank of Japan’s easing wasn’t sufficient, but when you consider that fiscal policy has been tightening since 2003, you may feel sympathy toward the Bank of Japan in that it’s faced so much pressure to try to overcome deflation on its own.”

Akitsugu Bandou, senior economist at Okasan Securities Co. in Tokyo:

“Markets and politicians have been pushing the Bank of Japan to do one thing after another, but I don’t think the measures they urged would have had much effect.”

“The Bank of Japan has done all it can.”

Chiwoong Lee, senior economist at Goldman Sachs Japan Co. in Tokyo:

“Solely printing money isn’t going to create inflation. Money has to be circulated, and the velocity of money is a function of demand.”

“If you’re expecting them to lower the yen, I don’t think that’s the BOJ’s role.”

Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo:

“The BOJ has responded promptly to currency spikes or stock drops, but it hasn’t done anything when the market’s been stable. We have to remember that Japan’s economy is still in a very tough situation where it’s been stuck in deflation for more than a decade.”

“It should think about bolstering the economic outlook over a broader horizon by expanding bond purchases to boost stocks and weaken the yen.”

Yuji Shimanaka, chief economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo:

“I understand the BOJ’s desire to wait and see how effective its quantitative easing measures will be and also whether the dollar and the euro will keep weakening before the bank moves further. But this wait-and-see approach is risky because it can’t let the market think it’s moving too slow. The BOJ needs to consistently make the first move, to be ahead of the market.”

Koji Ochiai, chief market economist at Mizuho Investors Securities Co. in Tokyo:

“As an academic, Shirakawa has put a strong emphasis on theory. There are certain things he will never budge on, like never allowing the policy rate to go all the way to zero. This is based on the bank’s mistakes in the past -- the zero-rate policy killed interbank lending.”

Daisuke Karakama, a market economist Mizuho Corporate Bank Ltd. in Tokyo:

“The BOJ deserves a lot of praise for the way it responded to the earthquake. It demonstrated its commitment to stabilize the markets by boosting reserves to 40 trillion yen, and it’s hard to come up with any criticism of how the BOJ responded.”

Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp. in Tokyo:

“There’s a limit to what monetary policy can do -- especially in a situation like this where the economy has taken a hit because of supply constraints. There’s not much the BOJ can do in a situation like this and I suspect that’s a very frustrating situation for the BOJ.”

“Given the fact that Shirakawa pulled Japan through a once-in-a-century financial crisis and a once-in-a-millennium earthquake, I think he will be remembered as a very good central banker.”

Minori Uchida, senior analyst at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo:

“As Shirakawa himself always says, monetary policy alone can’t defeat deflation. Even if the BOJ eases further, it won’t be that effective.”

“If monetary easing alone could beat deflation, we wouldn’t have had 15 years of deflation. That really shows that monetary policy alone doesn’t have the power to beat deflation.”

Kyohei Morita, chief Japan economist at Barclays Capital in Tokyo:

“Looking back on the past three years, a lot of the policy changes were reported by the press before the announcements, and the BOJ was forced to move through swings in the foreign-exchange market. The BOJ wasn’t able to lead in the sense that it was forced to determine policy by the market.”

Masayuki Kichikawa, chief Japan economist at Bank of America-Merrill Lynch in Tokyo:

“I’m afraid the BOJ may be coming back to take a wait-and-see stance that it held in the pre-quake period. Given that there is no fear of inflation now, the bank acknowledges the economy’s risk is tilted to the downside, and the yen is hovering around 80 per dollar, the bank should consider taking a more proactive stance.”

“The BOJ has been conservative in order to avoid making mistakes, and its tolerance for policy failures is lower than its U.S. and European counterparts. I believe that’s because the BOJ has had a shorter history of independence than its counterparts in the U.S. and Europe.”

Kiichi Murashima, chief economist at Citigroup Global Markets Japan Inc. in Tokyo:

“The BOJ has basically done all it can do, though I’m not sure it’s appropriate to say they were fully sufficient.

“Shirakawa’s inflation rhetoric has a hawkish bias, while Japan’s current price movements clearly warrant attention for downside risks. The governor and the central bank haven’t explicitly acknowledged the downside risks for prices until recently.”

Maiko Noguchi, an economist at Daiwa Securities Capital Markets in Tokyo:

“The effect of the earthquake on the Japanese economy is still being examined, and even though anxiety has prevailed, it’s hard to tell how much the central bank should respond to calls for more actions at this point. The bank has done what it needs to do for now and is also suggesting it will take more action if needed.”

Yasuo Yamamoto, a senior economist at Mizuho Research Institute in Tokyo:

“There was a policy misstep last August, when markets had expected the Fed to ease policy in QE2 and the yen was poised to advance, but the BOJ didn’t take any action at its regular monthly meeting. The Japanese currency jumped as a result.”

“Even though the issue of currency isn’t in the central bank’s jurisdiction, a strong yen affects the development of the economy and prices a lot.”

Kazuhiko Sano, chief strategist at Tokai Tokyo Securities Co. in Tokyo:

“Japan’s deflation has continued as its population is shrinking, people can’t expect high growth and have been discouraged from spending. The economy is already in a deflationary equilibrium.”

“The Bank of Japan has done the best it can do, and its moves were pretty swift” after the earthquake.

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