Japan has the best opportunity to beat deflation in more than a decade, said Heizo Takenaka, the architect of policy changes credited with solving the nation’s bad loan problems after a burst real-estate bubble.
Prime Minister Shinzo Abe’s administration “provides an opportunity to fix a very inappropriate monetary policy,” by the Bank of Japan, Takenaka, a former economy minister, said in an interview today. “This is a big chance to end deflation.”
Abe’s efforts to reverse falling prices have sent the yen more than 10 percent lower against the dollar in the last three months, pushing up stocks and buoying corporate profits. The premier is likely to nominate Asian Development Bank President Haruhiko Kuroda as BOJ governor, according to two officials with knowledge of the discussions, as he looks to usher in a new leadership team to achieve a 2 percent inflation target.
At 1:28 p.m. in Tokyo, the Japanese currency was little changed at 91.95 per dollar.
“It’s not surprising if the yen weakens to around 95 per dollar,” as it’s correcting from excessive gains, Takenaka, 61, said. “There is also a risk that the yen depreciates considerably past 100 if there is no fiscal consolidation after expansive monetary and fiscal policy.”
The Nikkei 225 Stock Average has risen by about 30 percent since mid November, when the election that brought Abe to power was announced. Honda Motor Co. plans to open its first domestic factory in almost 50 years this summer.
Chief Cabinet Secretary Yoshihide Suga said today that Abe aims to present his nominations tomorrow to replace outgoing central bank chief Masaaki Shirakawa and his two deputies, who step down on March 19.
“Global understanding of Japan’s monetary policy will be greatly enhanced,” by having Kuroda at the helm of the BOJ, Takenaka said, adding that the BOJ will be less likely to stray from global standards on monetary policy.
Kuroda was the currency chief at the Ministry of Finance from 1999 to 2003 and has headed the ADB since 2005.
“I told Abe yesterday that Kuroda is a great pick,” said Takenaka, who has known the ADB president for about three decades. “His understanding of economics is similar to ours and he is known in the international community.”
Former Bank of England board member Adam Posen echoed that view today, saying that Kuroda would have a great impact at the central bank.
Takenaka said that the BOJ should buy more government bonds to add liquidity to the market.
Still, Abe must ensure fiscal consolidation to contain Japan’s rising debt and implement a growth strategy now he has succeeded in pushing for bolder monetary policy, said Takenaka, who is a professor at Tokyo’s Keio University.
Japan’s public debt will swell to 245 percent of gross domestic product this year, the International Monetary Fund estimates.