Prime minister Shinzo Abe’s government officially nominated Yutaka Harada — an academic and former finance ministry bureaucrat — to the nine-member BoJ policy board on Thursday.
The nomination is crucial because the BoJ was split 5-4 on its last decision to ease policy. If approved by parliament, Mr Harada will replace Ryuzo Miyao, another stimulus supporter, keeping the working majority for aggressive policy.
More than just securing a majority, however, Mr Harada’s appointment will strengthen the BoJ’s commitment to ending deflation because he is closely linked to the policy’s strongest supporters.
His views are best summarised by a 2013 book, Reflation will Revive Japan’s Economy, co-authored with current BoJ deputy governor Kikuo Iwata.
“This looks a piece of good news for those expecting additional easing actions by the BoJ,” said analysts at Credit Suisse. “Importantly, if Harada joins, Governor [Haruhiko] Kuroda is likely to be able to continue to secure at least five votes for an easing action.”
Mr Harada, a PhD economist, spent 30 years as a bureaucrat in the cabinet office and finance ministry and then a decade as chief economist at the Daiwa Institute of Research. He became a professor at Waseda University in 2012.
In a recent interview with the Asahi newspaper, Mr Harada raised the possibility of further monetary easing. “[Inflation] has reached about 1 per cent but it needs to go higher,” he said. “For that purpose more easing is needed.”
He said the BoJ’s easing to date had worked to create expectations of inflation among the public.
“The rate of price rises is up from minus 0.5 per cent before large-scale easing to 1 per cent afterwards, so it has created inflation expectations,” he said. “But they can’t be allowed to fall. If it encourages people to think inflation will rise past 1 per cent, further easing would be good.”
The Bank of Japan launched a programme of quantitative easing in April 2013, promising to double the country’s monetary base, and then shocked financial markets last October by accelerating the rate of purchases to Y80tn a year.
The BoJ action caused a depreciation of the yen and initially pushed inflation up to about 1 per cent. It has now fallen back, however, because of the global fall in oil prices.
The central bank is therefore unlikely to meet its pledge of getting inflation back to 2 per cent in two years. That threatens the credibility of its policy, and could push the BoJ into further action later this year, to demonstrate commitment to its target.
The yen weakened only slightly on the news of Mr Harada’s appointment as it had been reported by the Nikkei newspaper earlier in the week.
Get alerts on Japan when a new story is published