Kuroda to Improve Dialogue With Market, Former BOJ Official Says

Incoming governor Haruhiko Kuroda and his two deputies are the “right people” to lead the Bank of Japan because of their ability to communicate policy intentions to investors, a former central bank official said.

“These are the right people, the appropriate people, for these important posts,” said Tetsuya Inoue, who was associate director general of the BOJ’s international finance branch until November 2008 and is now chief researcher for financial markets at Nomura Research Institute Ltd. in Tokyo. “Dialogue with the market will be better, well-designed. That will be a big difference” from the bank under Masaaki Shirakawa.

The yen slid 18 percent against the dollar over the past six months on expectations the next BOJ leadership would carry out additional easing. Shirakawa steps down today, with Kuroda taking over tomorrow. Kuroda has pledged to do whatever is needed to end 15 years of deflation, and expressed confidence a 2 percent inflation target is achievable.

The incoming chief and his deputies, Kikuo Iwata and Hiroshi Nakaso, won’t rush to add stimulus before the regularly scheduled policy meeting on April 4 because they need time to discuss their options with the rest of the board, Inoue said. That doesn’t necessarily mean disappointing investors.

“They could send a message in their initial press conferences this week,” he said. “They can hint at the policy tools they’re discussing.”

Longer Maturities

Inoue expects the BOJ to buy larger amounts of government debt and extend purchases to bonds with longer maturities, pushing down rates at the far end of the so-called yield curve.

The central bank currently buys government bonds with maturities as long as three years, as well as exchange-traded funds, real-estate investment trusts and other risks assets, through the asset purchase program targeted to reach 76 trillion yen ($796 billion) by the end of this year.

The yield on the benchmark 10-year government bond added one basis point to 0.595 percent as of 9:50 a.m. in Tokyo from yesterday, when it touched 0.585 percent to match the lowest level since June 2003. The difference in yield between 10-year and 2-year bonds dropped to 55 basis points yesterday, the least in almost a decade.

Japan’s government debt returned 1.7 percent this year, according to Bank of America Merrill Lynch indexes. The yen traded at 95.53 per dollar from 95.21.

Minutes released March 12 from the BOJ’s February policy meeting showed some members said options for easing include buying longer term bonds or more risk assets.

A few members said the bank might have to consider combining bond purchases with the rinban money-market operations, the minutes showed. That would have the added benefit of making policy more transparent, according to Inoue.

“Simplifying the message is very important,” he said.

Inoue believes achieving 2 percent inflation will be very difficult, and that the danger of hyper-inflation and a rapid drop in the yen are very low.

“The most probable outcome is less than 2 percent inflation, but the Japanese economy stabilizes,” he said. Such an outcome should be considered a success, according to Inoue.

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