Japan Parliament approves BOJ leaders; focus now on policy

Saturday, 16 March 2013 00:00 -     - {{hitsCtrl.values.hits}}

Reuters: Japan’s Parliament approved Haruhiko Kuroda as the next Governor of the Bank of Japan on Friday, paving the way for more vigorous monetary stimulus sought by Prime Minister Shinzo Abe as part of his economic revival plan.

Abe won power in December promising to end two decades of economic stagnation with reforms, big Government spending and aggressive monetary easing. He handpicked Kuroda (68), a vocal advocate of greater BOJ stimulus, as the bank’s new chief.

The parliament’s opposition-dominated upper house also approved Government nominees Kikuo Iwata and Hiroshi Nakaso as Kuroda’s deputies, a day after the trio sailed through a vote in the lower house where Abe’s ruling party has majority.

Kuroda was approved in the upper house with 186 in favour and 34 against, and Iwata won approval with 124 in favour and 96 against. Nakaso received 199 ayes and 22 no votes.

“We want the BOJ to press ahead with policy steps to achieve its 2% inflation target as early as possible,” Chief Cabinet Secretary Yoshihide Suga told reporters, adding the Government would work closely with the central bank.

The focus now shifts to what action the BOJ will take at its first meeting under the leadership of Kuroda, a former finance ministry official who has headed the Asian Development Bank for the past eight years.

Kuroda’s pledge to ‘act with speed’ and do whatever it takes to hit the BOJ’s new inflation target has some investors speculating he may summon a meeting even before the next scheduled policy review on 3 and 4 April.

While such an unscheduled meeting was considered unlikely, BOJ officials were nevertheless preparing just in case Kuroda decided to call one, people familiar with the central bank’s thinking told Reuters.

Under relentless pressure from Abe, the BOJ decided in January to switch to open-ended asset buying from 2014 to achieve the 2% inflation target as early as possible.

The Central Bank has agreed to buy assets or make loans totalling 101 trillion Yen (US$ 1.05 trillion) by the end of this year, part of which includes buying Government bonds with a maturity of up to three years.

Kuroda and Iwata, an academic, have said the BOJ should buy Government bonds with longer durations than it currently does to expand its balance sheet and boost inflation expectations.

Nakaso, a career central banker who is more conservative than the other two, has supported more asset purchases, saying the BOJ has more room to ease and should be open to new ideas.

With parliamentary approval secured, the trio will succeed incumbent Masaaki Shirakawa and his two deputies after they step down on 19 March.

But while Iwata (70), and Nakaso (59), will start their five-year term, a procedural quirk caused by Shirakawa’s decision to leave together with his deputies, three weeks early, means that Kuroda will first serve only the remainder of his predecessor’s term until 8 April.

He will have to be voted in again for the full five-year term probably early next month. Opposition Democrats, who have 87 seats in the 242-seat upper house, have said they were backing Kuroda in the first vote but had yet to decide whether to back him for the five-year term.

The Democrats voted against Iwata because of his support for calls to revise the law that guarantees Central Bank independence from Government influence, but votes from smaller parties secured his approval.