BOJ Rejects Earlier Asset Purchases in Shirakawa Finale: Economy

The Bank of Japan rejected a call for an immediate start to open-ended asset purchases in Governor Masaaki Shirakawa’s final meeting before a new leadership takes over at the central bank.

The board voted eight-to-one against the proposal by member Sayuri Shirai, the BOJ said in a statement in Tokyo today after a two-day meeting. Policy makers left an asset-purchase fund unchanged at 76 trillion yen ($810 billion) as forecast by all 23 analysts in a Bloomberg News survey.

Shirai’s call indicates she may already be looking ahead to the more aggressive monetary easing proposed by Haruhiko Kuroda, Prime Minister Shinzo Abe’s pick to be the next central bank governor. Her backing may help Kuroda to secure majority support for his measures after he said this week that the central bank could buy longer-maturity bonds and bring forward the open-ended purchases, due to start next year.

“Shirai’s proposals show that the BOJ is already moving to Kuroda’s governorship,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo and a former central bank official. Having her support before he joins “makes it more likely that the BOJ will add much more stimulus,” said Adachi, who sees action as soon as an April 3-4 meeting.

The yen strengthened after the BOJ decision on the absence of extra easing. The currency traded 0.1 percent higher at 94.00 per dollar as of 5:26 p.m. in Tokyo. The yen has fallen about 12 percent in three months as Abe pledges to end deflation and revive the world’s third-biggest economy.

‘One Ally’

Shirai’s stance shows that Kuroda and Kikuo Iwata, a nominee for deputy governor, will have “at least one ally on the nine-member policy board,” said Izumi Devalier, a Japan economist at HSBC Holdings Plc in Hong Kong. “However, the remaining policy board members may not be inclined to abandon the current monetary policy framework so hastily.”

At a press conference after the decision, Shirakawa said that Shirai wanted to communicate the central bank’s stance on achieving a 2 percent inflation target more clearly.

She “wants to maintain recent positive developments in the economy,” he said, adding that more details will be in the minutes of today’s meeting, to be released April 9.

Central banks in Europe, the U.K. and Malaysia are due to set monetary policy today after Indonesia left its benchmark unchanged. The European Central Bank may keep its benchmark interest rate at a record low. Bank of England policy makers will consider restarting asset purchases.

The BOJ decision came as Federal Reserve Bank of Dallas President Richard Fisher added to a drumbeat of concern about side-effects from Abe’s campaign.

BOJ ‘Politicized’

“He’s aggressive. He has basically politicized the central bank, which worries me personally,” Fisher said in a speech in San Antonio. “But he wants to see this deflationary” tendency “exorcized” and “he’s working very, very hard to change things, and indeed the stock market has responded.”

The Nikkei 225 Stock Average broke 12,000 for the first time since September 2008 today before closing at 11,968.08, a gain of 0.3 percent for the day.

Japan’s economy has stopped weakening as overseas economies show signs of picking up and exports appear to have stopped falling, the BOJ said today. The government wants to end deflation to revive the world’s third-biggest economy.

Shirai proposed accelerating the open-ended purchases and combining them with money-market operations. Currently, the BOJ buys government debt through two channels: its asset-purchase program set up in October 2010 and outright purchase operations, known as rinban.

Shirakawa’s Exit

Shirakawa and his two deputy governors exit March 19 after failing to end 15 years of deflation. Today, the board also voted down Ryuzo Miyao’s latest call for a pledge to keep interest rates at virtually zero until a 2 percent inflation goal is in sight.

“There is a possibility that the BOJ under Kuroda’s leadership will hold an emergency board meeting instead of waiting for the next scheduled meeting, to accelerate the process of monetary easing discussions,” said Takahiro Sekido, Japan strategist in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd.

Adachi said Kuroda will need to act boldly at next meeting and “if he disappoints, that may trigger shocks in the market.”

Some analysts and investors are skeptical about what the central bank will achieve.

“Kuroda will hit the wall of reality,” Atsushi Mizuno, vice chairman at Credit Suisse AG in Tokyo and a member of the BOJ board from 2004 to 2009, said in an interview yesterday. Options for aggressive easing are limited because excessive government-bond purchases could lead to a market bubble, Mizuno said.