Japan Should Adopt U.K.-Style Targets for BOJ, Abe Adviser Says

Japan's Former PM and President of the LDP Shinzo Abe
Japan's former prime minister and president of the Liberal Democratic Party Shinzo Abe. Photographer: Haruyoshi Yamaguchi/Bloomberg

Japan’s government should set the nation’s inflation target and hold the central bank governor accountable if the goal is missed, according to a former aide and economic adviser to Japan opposition leader Shinzo Abe.

“The governor should be made to appear in parliament or write an open letter to explain why a target hasn’t been met, as is the case in Britain,” Yoichi Takahashi, a ex-Finance Ministry official and aide to Abe during his 2006-2007 premiership, said in an interview yesterday. “There’s no need to go as far as having a provision to fire the governor.”

The views of Takahashi, who is now a professor at Tokyo’s Kaetsu University, will take on greater significance if Abe and his Liberal Democratic Party win Dec. 16 elections. Abe, who leads in opinion polls, advocates unlimited monetary easing to achieve a price target of as much as 3 percent to boost growth in a contracting economy.

Abe may adopt a less aggressive tone on the BOJ should he become prime minister for a second time, Takahashi said.

“What he says now as the head of an opposition party is irrelevant,” said Takahashi, who says he still speaks to Abe regularly and that he has advised him on monetary policy for about 12 years. “I don’t think he will say these things if he becomes prime minister.”

Since setting an inflation target of 1 percent on Feb. 14, BOJ Governor Masaaki Shirakawa has attended the Diet at least 24 times, according to the central bank’s website. Japan’s consumer prices fell 0.1 percent in September, a fifth monthly decline, and economists surveyed by Bloomberg News forecast a further decline in October.

Monetary Base

The BOJ should expand the monetary base by as much as 60 trillion yen ($733 billion), which would weaken the yen to around 100 against the dollar within a year, Takahashi said. Such a move could produce an inflation rate of 1 percent to 2 percent, he said.

Monetary easing should be carried out with the “simplest method” of buying Japanese government bonds, Takahashi said. Takahashi said he has discussed the idea of buying foreign bonds with Abe, without providing further details.

The nation’s monetary base, defined as banknotes and coins in circulation and current account deposits at the Bank of Japan, was 12.8 billion yen as of Oct. 31, according to BOJ data. The yen, which dropped to the weakest since April 4 last week, strengthened 0.4 percent to 81.85 per dollar as of 1:25 p.m. in Tokyo.

The government taking office after next month’s election will pick candidates for the central bank’s top three posts. Shirakawa, who politicians have criticized for failing to end more than a decade of deflation, finishes his five-year term on April 8. Shirakawa’s deputies Hirohide Yamaguchi and Kiyohiko Nishimura leave the central bank in March.

“It doesn’t matter who becomes governor if the Bank of Japan Law is changed to force the bank to keep to targets set by the government,” Takahashi said.

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