Japan is set to sustain its monetary stimulus for another five years after Haruhiko Kuroda was renominated as governor of the Bank of Japan, with a noted dove for one of his deputies.
Prime Minister Shinzo Abe sent nominations for the top three jobs at the BoJ to the steering committee of parliament’s lower house on Friday. The jobs require confirmation by both houses of parliament.
The reappointment would make Mr Kuroda the first person to serve a second term at the BoJ since 1961. By giving the architect of Japan’s monetary stimulus another five years, Mr Abe has signalled a renewed commitment to an escape from deflation.
“Aiming for steady progress towards the inflation target, we judged it most suitable to carry on entrusting the leadership of monetary policy to Mr Kuroda,” said Yoshihide Suga, chief cabinet secretary.
Mr Suga said the government wanted a governor who recognised the importance of escaping deflation and had the “unshakeable conviction” to do so.
Mr Kuroda will be 73 at the start of his second term in April, raising questions about whether he will serve the full five years — a period during which the BoJ may have to manage a tricky exit from its enormous asset purchases.
One of the two deputy slots went to Masayoshi Amamiya, a career official at the BoJ, who designed Mr Kuroda’s stimulative policies. The other went to Waseda University professor Masazumi Wakatabe, a strong supporter of “Abenomics” who has often argued for more aggressive stimulus by the BoJ.
The appointments are unlikely to change the balance of power on the BoJ’s policy board, with the retiring deputy governors holding similar views, but it recommits the central bank to stimulus at a time when the US Federal Reserve is raising interest rates.
“We would interpret the proposal to reappoint Governor Kuroda and nominate Mr Wakatabe, known as a reflationist, as a strong message from the Abe administration to pursue the current monetary easing scheme, including yield curve control,” said Naohiko Baba, chief economist at Goldman Sachs in Japan.
Mr Kuroda first launched the world’s most aggressive programme of monetary easing in April 2013 with a promise to buy ¥50tn ($472bn) of government bonds every year as well as equities and real estate investment trusts.
He increased the pace of purchases to ¥80tn a year in October 2014. In January 2016 the central bank adopted a negative interest rate of minus 0.1 per cent, and in September that year it capped 10-year bond yields at “around zero”.
The policy has helped Japan deliver several years of robust economic growth and driven the unemployment rate down to 2.8 per cent. But Mr Kuroda has struggled to generate inflation. The consumer price index for December, stripping out volatile fresh food and energy prices, was up just 0.3 per cent compared with a year earlier.
Unusually for an academic appointed to a central bank, Masazumi Wakatabe’s specialism is not macroeconomics but the history of economic thought. He has published widely on classical economists such as Adam Smith and John Rae.
A keen “reflationist” and supporter of Mr Abe’s economic policies, he has also written popular books such as Neoabenomics in 2015, arguing for determined monetary stimulus.
“There needs to be easing strong enough to absorb the negative impact of the consumption tax hike [planned for October 2019] and lift inflation to 2 per cent,” Mr Wakatabe told the Nikkei newspaper in December.
Mr Wakatabe is a regular correspondent with the Financial Times, arguing that monetary stimulus is the only way to overcome the country’s deflation. “It is true that Abenomics has not yet accomplished its objectives of ending deflation and reviving the economy, and it must be improved,” he wrote in 2016. “But replacing it is not the way to go.”
Last year he speculated about using “ helicopter money” — direct distributions of cash from the central bank to government or households — as a policy tool in China.
“The Chinese authorities could stimulate consumption by tax cuts or direct transfer to households and finance them by monetary policy,” he wrote. “Maybe now is the time for the Chinese authorities to embrace and experiment with helicopter money.”
While Mr Wakatabe’s direct authority will be limited as a BoJ deputy governor, he is likely to lead a strong group of doves on the central bank’s policy board, who will resist any attempt at an early exit from stimulative policy.
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