BOJ Nominee Iwata Adds to Calls for Buying Longer-Term Bonds

BOJ Deputy Governor Nominee Kikuo Iwata
Kikuo Iwata, professor of economics at Gakushuin University, has advocated changing the law governing the central bank to give the government greater say in setting policy goals. Source: JIJI PRESS/AFP/Getty Images

The Bank of Japan should buy longer-term bonds to help it achieve a 2 percent inflation target, said Kikuo Iwata, one of the government’s nominees for central bank deputy governor.

“The BOJ has a responsibility to quickly achieve the 2 percent target,” Iwata, 70, said today at a confirmation hearing in Parliament in Tokyo. “At the moment the BOJ only buys debt maturing up to three years; it should buy five years and longer.”

Investors are assessing how aggressive the BOJ will be in countering 15 years of deflation after governor Masaaki Shirakawa and his two deputies step down on March 19. Prime Minister Shinzo Abe’s nominee for governor, Haruhiko Kuroda, yesterday said the central bank should consider buying longer-term debt and indicated that open-ended asset purchases planned for 2014 could start this year.

Japan’s 10-year government bond yield touched 0.585 percent today, the lowest for a decade. Shares rose for a fourth day, with the Nikkei 225 Stock Average headed for the highest close since 2008, amid expectations for more easing. The yen was 0.4 percent higher at 93.13 per dollar at 1.40 p.m. in Tokyo.

The currency gained after Keisuke Tsumura, a lawmaker with the main opposition Democratic Party of Japan, said he personally doesn’t support Iwata’s nomination, highlighting a potential roadblock for Abe’s choice of deputy governor.

DPJ lawmakers have said they will back Kuroda while expressing reservations about Iwata, a longtime BOJ critic.

Opposition’s Stance

The party’s Secretary General Goshi Hosono told reporters yesterday that the party won’t announce an official stance on the nominees until testimony in both houses of parliament is complete.

The ruling Liberal Democratic Party aims to hold hearings for the three BOJ nominees in the upper chamber on March 11-12, parliamentary affairs chief Masashi Waki said today.

Nomura Holdings Inc. and Mizuho Securities Co. say more easing could come as soon as the first policy meeting under the new leadership, scheduled for April 3-4.

BOJ Executive Director Hiroshi Nakaso, the nominee for the second deputy governor position, said at the hearing today that meeting the 2 percent target in two years will not be easy and that wage growth is needed.

“The central bank has implemented lots of different policies and yet prices have barely changed,” he told lawmakers. “That’s something the BOJ needs to react to.”

‘Creative’ Policy

The central bank may have more room to be creative in its monetary policy, Nakaso said, without specifying what new steps should be taken.

“Nakaso’s basic stance regarding monetary policy needs to be closely monitored, as he is expected to play a very important role in reconciling the different views of the six board members and Kuroda/Iwata,” Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo and a former central bank official, said in a research note yesterday.

Kanno predicts that the BOJ will announce new easing measures at a meeting on April 26th, including buying longer-term bonds and bringing forward open-ended asset purchases to this year.

The BOJ currently buys bonds, as well as exchange-traded funds and other risk assets, through a fund targeted to reach 76 trillion yen ($816 billion) by the end of this year.

Wages rose for the first time in nine months in January, data released by the labor ministry showed today.

Taking Responsibility

Iwata, a professor at Gakushuin University in Tokyo, who has advocated greater government oversight of monetary policy, suggested that the BOJ leadership should be prepared to resign if they fail to meet the inflation target in two years.

“I don’t know for sure the best way to take responsibility, but I’m aware that resigning would be the most significant way,” he said in Parliament today.

Iwata also said that, while buying foreign bonds is not necessary at the moment, it should remain as a policy option.

Kuroda, by contrast, said yesterday that purchases of foreign bonds by the central bank would be difficult, echoing comments by Abe last month after Group of 20 nations pledged to refrain from targeting exchange rates for competitive purposes.

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