Extra Scrutiny of Bank of Japan Pledged by Economy Chief

Extra Scrutiny of Bank of Japan Pledged by Noda’s Economy Chief
A pedestrian walks past the Bank of Japan headquarters in Tokyo. Reports last week showed consumer prices in August matched the steepest decline in 16 months and industrial output fell more than forecast, increasing prospects the Bank of Japan will expand stimulus as early as this week. Photographer: Tomohiro Ohsumi/Bloomberg

Japan’s new Economy Minister Seiji Maehara pledged a closer watch over the central bank to ensure it meets a 1 percent inflation goal, adding that purchases of foreign bonds may be a powerful tool for easing.

“Now I am in this position, I will scrutinize even more strictly” the Bank of Japan’s efforts to achieve its target, Maehara, 50, told reporters in Tokyo yesterday. If the bank’s actions are insufficient, Maehara will do more than “just talk,” he said.

Newly-appointed Finance Minister Koriki Jojima, 65, said that central bank purchases of foreign bonds are an issue that “requires cautious handling and consideration,” suggesting he may have less enthusiasm for the idea. He also said the government will “take bold actions against the currency’s excessive moves if necessary,” echoing comments used by predecessor Jun Azumi to signal that intervention in currency markets remains an option.

Investors and analysts are looking for clues to any policy shifts after Prime Minister Yoshihiko Noda reshuffled his cabinet ahead of an election that may come as early as this year. In the case of Jojima, the nation’s fifth finance chief in three years and a newcomer to the cabinet, limited financial expertise may increase his reliance on ministry bureaucrats and lessen his own input.

“We know almost nothing about his economic or financial policies,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “He likely will follow the Ministry of Finance’s stance of intervening if necessary.”

Stocks Fall

The Nikkei 225 Stock Average was up 0.3 percent this morning, rebounding from a three-week low yesterday after U.S. manufacturing data beat estimates and Federal Reserve Chairman Ben S. Bernanke renewed a pledge to sustain record stimulus. Noda’s reshuffle is as tensions with China cloud the outlook for trade and deeper declines in consumer prices show deflation remains entrenched.

A 48 percent gain in the yen against the dollar in five years has hit exports and manufacturing. Azumi, the former finance minister, oversaw the sale of a record 8 trillion yen ($103 billion) in market intervention last October after the currency hit a postwar high of 75.35 yen per dollar. The yen was at 78.09 as of 11:06 a.m. in Tokyo today.

Tasks that Jojima must tackle include persuading opposition leader Shinzo Abe to back legislation for deficit-financing bonds so the government doesn’t run out of money.

“I am not a true expert, but I don’t think I’m so terrible at it,” Jojima said last night, when quizzed by a reporter on his experience with finance and currencies.

Maehara’s Stance

Maehara has been the leader of the Democratic Party of Japan and stepped down as foreign minister five days before the March 11, 2011 earthquake and nuclear disaster over allegations he violated campaign financing laws, and also served as transportation minister, overseeing the successful turnaround plan for Japan Airlines Co.

As DPJ policy chief, Maehara in August said it would be “desirable” for the government and the central bank to reach a deal allowing the bank to purchase foreign securities to help stimulate the economy. BOJ Governor Masaaki Shirakawa has opposed the idea, which would require the bank to identify and manage appropriate foreign assets.

Maehara “is fairly aggressive on monetary easing,” said Hiromichi Shirakawa, chief economist in Tokyo at Credit Suisse Group AG.

Weakness in exports may be strengthening the case for adding foreign-bond purchases to the central bank’s tool kit. Implementing the policy would alter the relationship between the Bank of Japan and the Ministry of Finance, which Azumi has said should control currency interventions, such as those conducted since Japan’s earthquake to weaken the yen.

Europe ‘Fears’

“If we do not correct the extreme yen appreciation, then Japan’s manufacturing will not hold up,” Maehara said today. “I think the current yen level is too high.”

Answering reporters last night, Jojima said his former role as deputy policy research chief for the DPJ was relevant to his new role and he had “shown an interest in my own way” in finance and currency issues. Current yen moves were partly because of “fears about the European debt crisis,” he said.

“Jojima isn’t much known in financial markets, but he was probably picked because of his bargaining ability with opposition parties,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. “He will inherit policies that Noda’s administration and the finance ministry have set.”

Loves Animals

Visitors to Jojima’s blog get few insights into his views on the yen or the economy. He referred to the currency’s strength once in 26 posts this year, and the economy three times. Last month, he wrote on his love of animals and reforming the electoral system.

A graduate of the University of Tokyo where he majored in agriculture, Jojima was first elected to parliament in 1996. Before entering politics, he was head of the worker’s union at food company Ajinomoto Co. and wrote a book on labor relations. His office wall is decorated with pictures of livestock and a sign saying he cured a 100-cigarette-a-day smoking habit by suddenly halting.

The new finance minister’s first appearance on an international stage will be next week as he and Shirakawa host the annual meetings of the International Monetary Fund and World Bank in Tokyo.

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