New BOJ Board Members Signal Willing to Mull More Easing

The Bank of Japan’s two new board members signaled their willingness to consider fresh forms of monetary easing to help end more than a decade of deflation.

The central bank may need to consider “new forms of monetary easing” as it’s unclear whether the BOJ’s 1 percent inflation target can be reached, Takahide Kiuchi told reporters in Tokyo today after his appointment. Takehiro Sato, also starting today, said buying foreign bonds would be one option.

The two former economists are joining the BOJ as it struggles to generate inflation and deal with a strengthening yen threatening exporter profits. The central bank, which has kept interest rates near zero since October 2010 and has an asset-buying program aimed at fueling private demand, has forecast that consumer-price increases will stay below its 1 percent goal for the next two years.

“I don’t think the two new members will drastically change monetary policy but when votes are split, they are likely to support easing,” said Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research and Consulting Co. “If the yen appreciates further and stocks continue to decline, the BOJ will probably have to bolster stimulus.”

The yen traded at 94.62 per euro at 10:52 a.m. in London today, after rising to 94.24 yesterday, the strongest since November 2000. The Japanese currency traded at 78.19 per dollar, after yesterday appreciating above 78 for the first time since June 4. The Topix Index of Japanese shares fell to the lowest level in more than a month today.

Policy Review

Sato, 50, former chief economist at Morgan Stanley MUFG Securities Co. and Kiuchi, 48, a former chief economist at Nomura Securities Co., have signaled the BOJ needs to do more to end more than a decade of deflation.

After almost two years “of monetary easing centered on asset purchases, the time is coming to examine the impacts of the policies,” Kiuchi said today. “If we conclude that the chance of achieving our target isn’t so high by extending the current policies, I think we of course need to consider new forms of monetary easing in a flexible manner.”

Japan’s central bank refrained from adding monetary stimulus in the past three meetings as reconstruction demand from last year’s earthquake and tsunami drives growth.

At a two-day policy meeting from July 11, the BOJ maintained its price forecast at 0.7 percent for the year starting April 2013. Japan’s consumer prices excluding fresh food fell 0.1 percent from a year earlier in May, government data released last month showed.

The first policy meeting including the new members is scheduled to be held from Aug. 8-9.

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