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Shirakawa Seeks to Shield BOJ From Pressure for Bond Buying

Bank of Japan Governor Masaaki Shirakawa
Masaaki Shirakawa, governor of the Bank of Japan. Photographer: Haruyoshi Yamaguchi/Bloomberg

Japan’s central bank chief sought to distance monetary policy from political pressure after stimulus implemented last month stoked speculation the government’s sway is increasing.

Governor Masaaki Shirakawa and his board yesterday rejected one member’s suggestion to build on the 10 trillion yen ($121 billion) of additional government-bond purchases announced Feb. 14. Officials instead expanded loans designed to boost long-term growth. Shirakawa told reporters after the meeting that bending to politicians would be “suicide.”

The unprecedented size of last month’s move proved a success in diminishing risks for Japan’s exporters, by sending the yen tumbling further from the postwar high against the dollar reached in October. At the same time, boosting government-debt purchases risks fueling concern that the BOJ is moving closer to financing the nation’s deficit spending, according to JPMorgan Chase & Co.

“The BOJ is eager to secure its independence from the government,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. who has worked for the central bank. After opting for action outside of the main asset-purchase program yesterday, the bank may expand that stimulus “in the near future,” perhaps at a meeting next month, she said.

After the yen rose in the wake of the BOJ’s decision, Shirakawa’s signal at his press conference that further bond purchases aren’t off the table sent the currency down. It fell 0.6 percent to 82.76 per dollar as of 6 p.m. in Tokyo yesterday and touched an 11-month low of 83.21 today after the U.S. Federal Reserve raised its economic assessment.

‘Political Pressure’

As lawmakers renewed calls for a more aggressive campaign to end deflation and spur growth in the world’s third-biggest economy, Shirakawa told reporters that “the Bank of Japan doesn’t change its monetary policy because it’s mindful of political pressure.”

Yoichi Kaneko, a lawmaker in the ruling Democratic Party of Japan, said that yesterday’s move to expand low-interest lending facilities for industries, including 1 trillion yen of dollar-denominated credit, “has no bearing on economic recovery; I can’t see the positives in this.”

Shirakawa ordered his staff to outline details for the dollar loan facility by the board’s next meeting on April 9-10. While the BOJ says its lending programs to aid growth have been effective, details of where the money is going are not public.

Long-Term Challenge

“Japan’s economy currently confronts the long-term structural challenge of declining trend growth rates amid rapid population aging,” the central bank said in a statement explaining the extra lending measures to aid growth.

One policy maker, Ryuzo Miyao, had advocated a 5 trillion yen boost to asset-buying and credit-loan programs that already total 65 trillion yen. Yesterday’s announcement that he’d lost the argument pared an advance of as much as 1.2 percent in the Nikkei 225 Stock Average before the decision. The Nikkei closed 0.1 percent higher.

Masaaki Kanno, chief Japan economist at JPMorgan in Tokyo and a former BOJ official, said in a report last month that central bank bond purchases in the absence of fiscal austerity measures could be seen as paving the way for debt monetization. He reaffirmed that view in a phone interview yesterday.

Japan’s economy is showing signs of rebounding from a contraction last quarter. Machinery orders rose a more-than-forecast 3.4 percent in January, a report showed this week, and industrial production and retail sales also exceeded economists’ median estimates. Toyota Motor Corp., Asia’s largest carmaker, last month raised its profit forecast.

Expectations for Easing

Yesterday’s policy decision “is a bit disappointing” to investors anticipating further expansion in liquidity, said Masamichi Adachi, a fellow economist at JPMorgan. At the same time, Miyao’s vote in favor of more asset purchases “spurs expectations that the central bank will take action,” he said.

The decision to leave the asset purchase and credit-loan programs unchanged was anticipated by 12 of 14 economists surveyed by Bloomberg News. The benchmark interest rate stayed at between zero and 0.1 percent. Hiroshi Watanabe, the nation’s former top currency official, said the BOJ could afford holding off on additional stimulus after moving in February.

Signal Readiness

“The central bank just needs to signal its readiness to take action when something happens,” Watanabe, chief executive officer of the state-run Japan Bank for International Cooperation, said in an interview yesterday in Tokyo. “It’s necessary for the bank to show its commitment that it would respond flexibly to situations.”

Shirakawa is being summoned to the nation’s parliament more regularly this year to answer lawmakers’ questions -- appearing 11 days as of March 12, nearly half his total number of appearances last year.

“My understanding is that there will probably be more easing ahead if the policies don’t produce results,” Katsuyuki Ishida, a vice cabinet minister who attends monetary policy meeting as a government representative, said this week.

Prime Minister Yoshihiko Noda’s approval ratings have halved since he took office in September, according to poll data from public broadcaster NHK. Noda is struggling to convince lawmakers to double the sales tax to 10 percent to help contain the world’s largest public debt burden.

Goldman Sachs Group Inc. and Nomura Securities Co. raised growth forecasts for Japan this month as capital investment increases because of reconstruction work after the earthquake and tsunami last March.

The government has compiled about 20 trillion yen for rebuilding after last year’s disaster left more than 19,000 dead or missing. The spending should start to lift the economy this quarter, said Takahide Kiuchi, chief economist at Nomura Securities Co. which raised its growth forecast to 2 percent in the year starting April 1 from a previous 1.8 percent estimate.

The BOJ will hold two board meetings next month, reviewing its price and economic forecasts at the second gathering. The policy board is also set for changes, with two members’ terms to expire.

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