BOJ Seen Spiking Punchbowl in April Under New Chief Kuroda
Kuroda, the current Asian Development Bank president, would take office after Governor Masaaki Shirakawa retires March 19, if confirmed by Parliament following his official nomination yesterday. Analysts at banks from Nomura Holdings Inc. to Mizuho Securities Co. see more easing as soon as an April 3-4 meeting.
Given a jump in Japanese stocks and slide in the yen in recent months in anticipation of greater stimulus under the new leadership, any failure to move in April risks disappointing investors, ex-Bank of England central banker Adam Posen said this week. With a third-straight fall in consumer prices in January showing the scale of his challenge, Kuroda may seek to adjust the timing, size and type of assets the BOJ buys.
“The party has just started,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo, who in January predicted that Kuroda would get the job. “Give us more alcohol and get us excited -- he will do that,” Kanno said of Kuroda, predicting that the bank’s open-ended bond purchases --currently scheduled to begin in January -- will be brought forward to May or June.
Kanno’s analogy refers to a comment credited to former Federal Reserve Chairman William McChesney Martin equating tighter monetary policy with removing the punch bowl at a party
Prime Minister Shinzo Abe’s administration will hold Diet confirmation hearings from March 4, Tsutomu Sato, acting chairman of the ruling Liberal Democratic Party’s parliamentary affairs committee, said today. The opposition Democratic Party of Japan, the largest party in the upper house, signaled it will back Kuroda, easing his passage through a split parliament.
Abe nominated Kikuo Iwata, an economics professor who backs greater government oversight of monetary policy, and BOJ Executive Director Hiroshi Nakaso for two deputy governor posts.
The Japanese currency was little changed today after falling nearly 11 percent against the dollar in the past three months. It was at 92.55 per dollar at 3:08 p.m. in Tokyo. The Nikkei 225 (NKY) Stock Average closed 0.4 percent higher after yesterday capping its longest monthly winning streak since 2006.
The yen’s slide has bolstered confidence among some manufacturers, with Toyota Motor Corp. raising its profit forecast to a five-year high. Hiroshi Tomono, the head of a steel industry group, told reporters yesterday he expects the central bank to act quickly in tandem with the government.
Capital spending excluding software rose 0.9 percent in the three months through December from the previous quarter on a seasonally adjusted basis, the first increase in four quarters, the Ministry of Finance said today in Tokyo.
Masamichi Adachi, senior economist at JPMorgan in Tokyo, said the economy probably grew at an annualized 0.4 percent pace in the fourth quarter, compared with the government’s initial reading of a 0.4 percent contraction. The revised GDP figure will be released on March 8.
“There’s a high chance that the BOJ will apply further monetary easing on April 3-4,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former central bank official. “Possible measures include abolishing the interest rate on excess reserves, extending the maturity of government bonds purchases to 10 years and bringing open-ended asset purchases forward to this year.”
Tomo Kinoshita, an economist at Nomura Holdings Inc. in Tokyo, sees a 10 trillion yen ($108 billion) increase in the bank’s asset purchase program as the most likely move.
“Even if the BOJ takes no action, the new governor will probably signal more easing at the next meeting on April 26,” he said.
While Shirakawa, who steps down with his deputies on Mar. 19, established a 76 trillion yen asset-purchase fund and an unlimited bank-loan financing program, he failed to encourage inflation, instead warning repeatedly about the dangers of excess stimulus.
The central bank released a research paper yesterday on dealing with asset price bubbles, a risk that Shirakawa has consistently warned about.
He said on Feb. 19 that a sudden increase in prices could spark a rise in long-term bond yields, and has repeatedly said that the government must reform its finances as the nation’s debt rises to more than twice the size of the economy.
By contrast, Kuroda called for an inflation target a decade before the bank adopted one in January, and for years has spoken in favor of quantitative easing.
The BOJ adopted the 2 percent inflation target advocated by Abe without a deadline and said it would shift to the open-ended asset purchases in 2014 without adding any extra stimulus this year. A gauge of consumer prices excluding fresh food fell in eight of 12 months last year, while the economy shrank for three quarters through December.
Prices fell 0.2 percent in January from a year earlier, the statistics bureau said in Tokyo today. The jobless rate fell to 4.2 percent while household spending rose 2.4 percent, separate data showed.
“Kuroda and Iwata will want to show that a tremendous change is happening,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. “Sooner or later, a restructuring of the asset purchase program and the BOJ’s monthly bond-buying operations will be on the agenda.”
To succeed, Kuroda will need to persuade existing members of the nine-person board to go along with his plans.
Two who joined last year -- Takahide Kiuchi, a former Nomura Securities Co. economist, and Takehiro Sato, previously of Morgan Stanly MUFG Securities Co., -- dissented from adopting the 2 percent price target in January, saying it was unlikely to have a major impact on inflation expectations.
That came after the pair voted for a more-expansionary wording of the bank’s policy objectives last year.
Kiuchi said yesterday in a speech in Yokohama, near Tokyo, that the BOJ will consider further stimulus if necessary, while stressing that achieving the 2 percent target won’t be easy.
“Kuroda will have to maintain the balance between a new level of easing and the risk of being seen as financing government spending,” said Nobuyasu Atago, principal economist at the Japan Center for Economic Research and a former BOJ official. “He doesn’t want to disappoint the markets.”
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