Japan Picks Stimulus Advocates for BOJ Amid Calls for Action

Japan Nominates Economists Kiuchi, Sato to Bank of Japan Board
Handout photographs show Takehiro Sato, chief economist at MUFJ Morgan Stanley Co., left, and Takahide Kiuchi, chief economist at Nomura Securities Co. Source: MUFJ Morgan Stanley Co. (Sato) and Nomura Securities Co. (Kiuchi) via Bloomberg

Japan’s government nominated two economists to the central bank’s board who previously signaled support for stimulus, underscoring forecasts for policy makers to expand asset purchases in coming months.

Prime Minister Yoshihiko Noda’s administration yesterday tapped Takahide Kiuchi of Nomura Securities Co. and Takehiro Sato of Morgan Stanley MUFG Securities Co., pending confirmation by the Diet. The picks broke with a practice of choosing candidates from similar backgrounds to the board members they replace; the retired members had business backgrounds.

The nominees would join a central bank that’s boosted its asset fund by 20 trillion yen ($252 billion) this year yet been faulted by lawmakers for failing to do enough to end deflation and stoke growth. Sato said in an interview last month the BOJ’s inflation forecast for next year was “wishful thinking,” and Kiuchi said the bank may need to cut growth and price forecasts.

“Both nominees have indicated that the BOJ has to take more actions,” said Chotaro Morita, chief strategist for fixed income at Barclays Capital Japan Ltd. “Whether they join or not, the BOJ may have to do more soon as uncertainties remain high in the global economy especially in Europe.”

Parliament will probably vote on the appointments around June 21, opposition lawmaker Yousuke Tsuruho, who sits on a joint committee that received the nominations, told reporters yesterday. The five-year terms of former board members Seiji Nakamura and Hidetoshi Kamezaki, who had been executives in the shipping and trading-company industries, concluded April 4.

IMF’s Call

The BOJ concludes its next policy meeting, a two-day session, on June 15. The International Monetary Fund today said in an annual review of Japan’s economy that further BOJ easing would accelerate achievement of its inflation target, and that the yen’s exchange rate is overvalued from a medium-term view.

The nominations are a chance for lawmakers to push the Bank of Japan to do more to end decade-long deflation and bolster growth as the nation’s debt burden limits the flexibility of fiscal policy. The economy’s rebound from last year’s earthquake-affected contraction is forecast to slow in the second half as reconstruction fades and Europe’s crisis bites.

Kiuchi, 48, and Sato, 50, couldn’t be reached for comment when contacted by telephone by Bloomberg News yesterday.

July Move

“We expect the next round of easing to come around July,” when the BOJ reviews its growth and inflation forecasts, Morgan Stanley economists including Sato wrote in a research report on May 15. “The prevailing political climate makes an end to easing unlikely.”

Sato forecasts a 0.3 percent decline in consumer prices in the year ending March 2014, while Kiuchi sees a rise of the same amount. Both predictions are below the lowest forecast provided by board members in April. This indicates that if both men join the board and do not change their inflation estimates, the BOJ’s prediction for a median 0.7 percent increase in fiscal 2013 could be lowered, further postponing the achievement of the bank’s price goal.

Yesterday was the second attempt by the government to fill at least one of the openings. On March 23, it sent just one name to the joint Diet committee, Ryutaro Kono, BNP Paribas SA’s chief Japan economist. While the Nikkei newspaper reported that Kohei Watanabe, an adviser to trading house Itochu Corp., would be tapped, Watanabe wasn’t nominated.

Kono Rejected

Kono was rejected after some lawmakers said he wasn’t aggressive enough regarding the use of monetary stimulus to end deflation. After his rejection, Kono said that some politicians were pushing economic policies “entirely divorced from reality” and making “unrealistic” demands on monetary policy.

“Compared with the candidate proposed last time around, I have the impression that they are more inclined towards easing,” Takeshi Miyazaki, a ruling Democratic Party of Japan lawmaker who is also a member of the party’s anti-deflation group, said in an interview. “It appears they have both been critical of the current BOJ stance to some extent.”

Lawmakers and business leaders have urged policy makers to take more steps to combat the appreciation of the yen, which undermines the competitiveness of Japan’s exports. The currency has soared 53 percent over the past five years against the dollar, and was at 79.35 as of 12:10 p.m. in Tokyo, up from this year’s low of 84.18 in mid-March.

Better Communication

Bringing aboard two investment-bank economists may help strengthen the central bank’s communication with financial markets, said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former central bank official. Former BOJ board member Atsushi Mizuno is among those who have criticized the bank for a lack of clarity on its intentions.

When Governor Masaaki Shirakawa and his colleagues unveiled a 10 trillion yen expansion in government-bond purchases on April 27, the impact of the stimulus was diminished by the bank predicting it would achieve victory before long on its inflation goal. The statement was akin to saying the bank would “press on the accelerator and they suddenly hit the brake hard,” Hiromichi Shirakawa, a Credit Suisse economist, said that day.

‘Get Better’

“This means that the government wants the BOJ to review its communication methods with market and they think the BOJ needs to get better,” Kumano said yesterday, referring to the nominations.

Sato joined Morgan Stanley in 1999, previously worked at Sumitomo Bank and the Japan Research Institute Ltd. and is a graduate of Kyoto University. Kiuchi joined a unit of Nomura in 1987, previously worked at the company’s New York and Frankfurt offices, and attended Waseda University in Tokyo.

With interest rates near zero since 2008, the bank has been using its asset-purchase program, now at 40 trillion yen, as the main policy tool. The bank has experienced repeated failures in its monetary policy operations in recent weeks, with lack of demand for a short-term funding credit loan program and lack of supply of government notes for the bond purchase facility.

Demand for bonds has jumped amid a stock slump. Yields on 10-year securities touched 0.79 percent last week, the lowest since 2003, while the Nikkei 225 Stock Average has declined more than 12 percent in three months.

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