Kuroda’s Sway Over Board Tested as BOJ Mulls Policy StepsToru Fujioka
Bank of Japan Governor Haruhiko Kuroda may be constrained in the amount of stimulus he can deliver at his first policy meeting today as he seeks support from a board mostly appointed by the previous government.
The central bank chief has only three definite allies for boosting monthly bond purchases on the nine-person committee, according to BNP Paribas SA. Credit Suisse Group AG says a struggle to secure consensus could limit Kuroda to doing the “minimum required” and signaling stronger measures to come.
Disappointing investors would risk a rebound in the yen that would make it harder for the central bank to achieve Kuroda’s goal of 2 percent inflation in two years. The currency reached a 3 1/2-year low against the dollar last month and stocks surged as Kuroda proposed policies from increased bond buying to bringing forward open-ended asset purchases from 2014.
“The best outcome for Kuroda would be agreement on every measure, but it’s unlikely,” said Hiromichi Shirakawa, chief Japan economist at Credit Suisse in Tokyo and a former BOJ official. “If he fails, it may be difficult to restore investors’ confidence.”
The yen traded near its strongest level in a month today, gaining 0.2 percent to 92.84 per dollar as of 9:05 a.m. in Tokyo, amid speculation more BOJ easing has already been priced in by investors. The Nikkei 225 Stock Average fell 1.8 percent, after yesterday rising the most in eight weeks.
At stake is the credibility of Prime Minister Shinzo Abe’s economic program -- dubbed Abenomics -- and his chances of ending stagnation in a country that emerged from its third recession in five years at the end of 2012.
All 19 economists surveyed by Bloomberg News see the BOJ taking some action today. Fifteen see an increase in monthly bond purchases, with 11 giving a numerical forecast. The median is for 5.2 trillion yen ($56 billion) per month, a 50 percent increase on the average during the first quarter, according to data compiled by Bloomberg.
Two economists expect the BOJ to delay expanding monthly bond purchases.
Kuroda has pledged to consider combining monthly purchases and an asset-purchase fund, scrapping a rule limiting the scale of buying, and increasing the amount and maturities of debt bought.
While Kuroda may be able to secure at least five votes with the support of his two deputies and members Sayuri Shirai and Ryuzo Miyao, he may delay some decisions to avoid divisions on the board, said Chotaro Morita, chief strategist for fixed income at Barclays in Tokyo.
Shirai called for an immediate start to the open-ended program last month, while Miyao has urged a stronger commitment to achieving the price target.
Hiroshi Nakaso, one of two deputy governors and a former BOJ official, told lawmakers on March 12 that he sees no difference between his views and those of Kuroda and Deputy Governor Kikuo Iwata. Iwata said last month the BOJ should commit to achieving the target within two years.
Lawmakers will tomorrow get the opportunity to question Kuroda on his policies for reviving the economy. Companies including Toyota Motor Corp. are set to benefit from the yen’s slide, with the world’s largest carmaker raising its profit estimates for the current fiscal year. Household sentiment on the economic outlook is at a record high.
At today’s meeting, the deputies and probably Shirai will support Kuroda, “but it’s still uncertain how the rest of the board will vote,” said Atsushi Ito, Tokyo-based chief Japanese government bond strategist at BNP Paribas.
Two economists who joined last year -- Takahide Kiuchi of Nomura Securities Co. and Takehiro Sato of Morgan Stanley MUFG Securities Co. -- dissented from adopting the 2 percent price target in January. Koji Ishida said last month the BOJ’s asset-buying is already “virtually open-ended” while Yoshihisa Morimoto on Feb. 20 said the BOJ’s easing is “unprecedented.”
The BOJ currently buys bonds with maturities of up to three years, as well as exchange-traded funds and other securities, in a program targeted to reach 76 trillion yen by the end of the year.
Minutes from a February meeting showed that some members favored buying longer term bonds, and a few said the asset fund could be combined with outright purchase operations, known as rinban, under which the BOJ buys up to 30-year bonds.
“Kuroda must at least show the BOJ is shifting toward reaching the price target,” said Koichi Haji, executive director at the NLI Research Institute in Tokyo, an affiliate of Nippon Life Insurance Co., Japan’s biggest life insurer. “He can’t afford to fail from the beginning.”