Japanese Prime Minister Shinzo Abe is likely to nominate Asian Development Bank President Haruhiko Kuroda as Bank of Japan governor, according to two officials with knowledge of the discussions.
Abe is also likely to tap Kikuo Iwata, an academic who has urged a ramping up in Japan’s monetary base to end deflation, and Hiroshi Nakaso, a senior BOJ official, as deputy governors, according to one government official and a ruling coalition executive, who asked not to be named as the talks are private. Finance Minister Taro Aso lauded Kuroda in remarks to reporters today. The yen fell and Japanese stocks rose on the plans.
The picks would raise the odds of further BOJ stimulus after Kuroda, 68, who advocated an inflation target more than a decade before the bank adopted one in January, said this month additional easing can be justified for 2013. Iwata briefed Abe on monetary policy and the economy during his stint in opposition, when he decided to make reflation the main plank of his campaign for the Liberal Democratic Party to retake power.
“Kuroda has a degree of credibility, having been there relatively early” with arguing for an inflation target, said Richard Jerram, chief economist at Bank of Singapore Ltd., who has analyzed the Japanese economy since the 1980s bubble years. “The end of a toleration of deflation” means the nation is at an inflection point, where growth could return to 1 percent to 2 percent a year as real interest rates are brought down, he said.
The yen slid in anticipation of more liquidity from the BOJ, with the currency reaching its lowest level against the dollar in 2 1/2 years. It was at 94.14 as of 5:14 p.m. in Tokyo. The Nikkei 225 Stock Average jumped 2.4 percent, bringing its rally since mid-November to about 35 percent.
The ruling LDP needs support from other parties to win confirmation for the nominations in the upper house of Parliament, where it lacks a majority. Abe today informed his coalition ally New Komeito of his picks, according to Komeito head Natsuo Yamaguchi, speaking to reporters.
The opposition Democratic Party of Japan, the largest party in the upper chamber, last week agreed to abandon a rule of opposing nominees whose names had been reported in the press, reducing the risk of Kuroda failing to win confirmation. Local media including Kyodo and the Nikkei newspaper previously reported Abe’s plans to name Kuroda.
The head of the smaller opposition Your Party said in a Feb. 14 interview that Kuroda would be an unacceptable choice due to his background as a finance ministry bureaucrat. Chief Cabinet Secretary Yoshihide Suga today told reporters that Abe hasn’t made his decision yet.
Kuroda was the Finance Ministry’s senior official in charge of foreign-exchange issues from 1999 to 2003, succeeding Eisuke Sakakibara, who was known as “Mr. Yen” for the influence he wielded over currency markets. He also served as a special adviser to the cabinet of Prime Minister Junichiro Koizumi. He has led the Asian Development Bank since 2005.
“He has a lot of experience in international finance at the ADB and elsewhere,” Aso told reporters in Seoul today. “Picking a person like that is a correct decision.”
Nakaso, 59, is a career Bank of Japan official who currently serves as head of international affairs, a position in which he liaises with other central banks, and a veteran of Japan’s 1998 financial crisis. Iwata, 70, was a critic of BOJ monetary policy as long ago as the early 1990s, according to a research paper published in December by Columbia Business School’s Center on Japanese Economy and Business.
Having an academic as one deputy offers “intellectual weight,” and a BOJ senior staff member as the other gives “institutional continuity,” said Jerram.
Outgoing Governor Masaaki Shirakawa earlier this month said he would step down on March 19, the same day as the expiration of the terms of his two deputies, bringing forward his scheduled departure by almost three weeks.
The new leadership team will complete an overhaul of the central bank’s board after the former government placed Takahide Kiuchi, a former Nomura Securities Co. economist, and Takehiro Sato, previously of Morgan Stanly MUFG Securities Co., on the nine-member panel.
Sato and Kiuchi in November voted for a more-expansionary wording of the bank’s policy objectives. In January, the pair dissented from adopting a 2 percent inflation target, as they said setting the goal itself was unlikely to have a major impact on inflation expectations, and because it was more important to focus first on efforts to generate higher consumer prices.
The BOJ policy board next meets on March 6-7, the last to be overseen by Shirakawa, 63, who helped avert damage to Japan’s financial system during the 2007-2009 global credit crisis and in the aftermath of Japan’s record March 2011 earthquake, while failing to defeat deflation. The central bank in January planned to shift to open-ended asset purchases starting next year, with no additional stimulus for 2013.
Kuroda said in a Feb. 11 interview that it was important to end price declines because they cause households and businesses to postpone spending and because they worsen the real debt burden. He said Japan’s central bank has “really substantial room” for further easing.
An advocate of an inflation target as high as 3 percent in 2002, Kuroda said this month that the current 2 percent goal is “appropriate.” Abe pushed for a target during his campaign for office ahead of December 2012 elections that were swept by his party.
Kuroda said that the BOJ has the equivalent of trillions of dollars of assets it could purchase to expand its balance sheet. Iwata said in an interview last month that the best bet to achieve 2 percent inflation is to increase the cash that commercial lenders have at the central bank. Boosting the so-called current account holdings would expand the monetary base.
The most likely option for additional stimulus in coming months is purchases of longer-dated government bonds, according to analysts including Jerram and Barclays Plc’s Chotaro Morita.
“It seems likely that Mr. Kuroda and Mr. Iwata will judge it inadequate to strengthen the BOJ’s monetary easing as an extension of the current framework,” Morita wrote in a research note today. “The new leaders will probably want to make a visible change to JGB-buying policy.”
One option considered last year by the LDP and advocated by a one-time potential contender to succeed Shirakawa -- ex BOJ Deputy Governor Kazumasa Iwata -- was purchases of foreign-currency securities.
Abe last week backed away from the policy proposal after Group of 20 nations pledged to refrain from targeting exchange rates for competitive purposes, saying in parliament that such a plan would be unnecessary under a new central bank chief.
The new central bank leadership will face an economy that shrank for the past three quarters, and with no sign of an end to deflation. Consumer prices fell in seven of eight months through December.
A surge in the yen to a postwar high against the dollar by late 2011 had undermined exporters including Panasonic Corp. and Nissan Motor Co. By December 2012, the number of manufacturing jobs slid below 10 million for the first time since 1961.
The yen has dropped about 15 percent since mid-November, when it began falling in anticipation of Abe winning the election and forcing additional monetary stimulus. Kuroda said this month that the currency is going through a “natural adjustment” from an excessive value.
Success in rekindling inflation may either stoke a rebound in growth or add diminishing purchasing power as a new woe for the indebted nation, the world’s third-largest economy.
“The market is moving and that’s making people happy, but there are a lot of question marks,” Shunsuke Motani, a former senior economist at Deutsche Bank AG and founder of independent research firm Sphynx Investment, said in an interview last week. “This isn’t the first time the BOJ has tried money printing: In the early 2000s there was a roughly 70 percent increase in the monetary base and it had absolutely no effect on prices.”
Besides Kuroda, a graduate of the University of Oxford and Tokyo University, speculation over possible candidates for the BOJ role has centered on people including Tokyo University’s Takatoshi Ito and former BOJ deputy governors Kazumasa Iwata and Toshiro Muto.