BOJ Has Done Too Little, Says Potential Contender for Governor

BOJ Deflation Policies ’Too Little, Too Late,’ ex-MOF Ito Says
Takatoshi Ito, dean of the Graduate School of Public Policy at the University of Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

The Bank of Japan has failed to end more than a decade of deflation by being too cautious, said Takatoshi Ito, a former finance ministry official who is a contender to become the central bank’s next governor.

The bank’s board under Governor Masaaki Shirakawa, who steps down in April, has done “too little, too late,” Ito, dean of Tokyo University’s Graduate School of Public Policy, said yesterday in an interview in Tokyo. The BOJ should have started its asset-purchase program earlier and has been “extremely passive in building inflation expectations,” he said.

Ito’s criticism of the central bank echoes that of opposition leader Shinzo Abe, whose Liberal Democratic Party is leading in polls to win a national election on Dec. 16. Abe’s call for unlimited easing and an inflation target of 2 percent sent the yen to a seven-month low last month.

“Inflation targeting will become a very important element” to stamp out deflation, Ito, 62, said. “It’s worth trying in order to pull Japan out of a deflationary spiral that has lasted 15 years.”

The yen has weakened around 1.4 percent against the dollar since Abe’s remarks in November, the most among 16 major currencies tracked by Bloomberg, a reaction that Ito said was positive. As of 9:09 a.m. in Tokyo, the currency was at 82.47.

Ito was nominated for BOJ deputy governor in 2008 by the LDP when the party was last in power. He was rejected by the opposition-controlled upper house of parliament along with two candidates for governor who, like Ito, had been finance ministry officials. Ito was deputy vice-finance minister from 1999 to 2001.

Inflation Goal

The BOJ’s fund to buy government assets and other securities, its main policy tool amid near-zero interest rates, should have started in 2008 instead of 2010 to help deal with the global financial crisis, Ito said. The BOJ increased the size of the fund by 11 trillion yen ($133 billion) to 66 trillion yen on Oct. 30, its second monetary easing in two months.

The central bank set a price goal of 1 percent in February and has pledged “aggressive” easing until the target is in sight.

The government and Bank of Japan should establish a written inflation target, Ito said. “There’s no need to revise the law” to do it, he said.

The LDP proposed in its campaign manifesto establishing a joint BOJ, Ministry of Finance and private sector fund to buy foreign bonds in a bid to defeat deflation and weaken the yen, without giving further details.

Foreign Bonds

“The BOJ can and should buy foreign bonds,” Ito said. This is possible if the finance minister publicly declares support for such purchases, he said, advocating the bank buy debt from issuers such as the European Financial Stability Facility.

Shirakawa’s term ends in April next year and his deputies Hirohide Yamaguchi and Kiyohiko Nishimura exit in March.

With two former private-sector economists, Takehiro Sato and Takahide Kiuchi, on the nine-member board showing signs of favoring more stimulus, a new government has the chance to install a pro-easing majority on the central bank board.

Ito has been mentioned as a potential candidate for governor by economists including Koichi Hamada, a retired Yale University economics professor who taught Shirakawa at Tokyo University, and Masamichi Adachi, a senior economist at JPMorgan Securities Japan Co. in Tokyo and a former central bank official.

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