Reuters
Two vacancies opening up in the Bank of Japan next year give premier Shinzo Abe a chance to tip the board’s balance in favour of further monetary stimulus, removing a headache for his hand-picked central bank head.
The board’s composition has taken on greater significance after Governor Haruhiko Kuroda won a tight 5-4 vote in October’s surprise expansion of an already radical monetary experiment that pumps roughly $84bn each month into the economy.
The October move exposed a board rift, suggesting it would be difficult for Kuroda to push forward with further stimulus, which many analysts think will be needed next year as the central bank struggles to reach its 2% inflation goal.
The five-year term of two board members, including one who voted against October’s action, ends next year.
“Abe will probably choose people close to Kuroda’s reflationary view. Whoever is chosen, the BoJ’s policy stance would be pretty much in line with what Kuroda wants,” said Takeshi Yamaguchi, senior economist at Morgan Stanley MUFG.
Ryuzo Miyao, a 50-year-old former academic and a policy dove who supported October’s policy easing, is due to leave the board in March.
More importantly, the term of Yoshihisa Morimoto, who voted against the expansion in policy, expires in June.
The 70-year-old former utility executive reluctantly voted for the introduction of the so-called quantitative and qualitative easing (QQE) last April and has been sceptical of the policy since then. His concern is that by gobbling up so many government bonds, the BoJ is moving dangerously close to bankrolling public debt.
A more sympathetic board will ease Kuroda’s task as some members have openly raised doubts about the feasibility of QQE, even as Abe and the central bank chief have insisted that steady progress is being made to jump-start Japan’s economy and defeat years of grinding deflation.
Critics say the BoJ’s huge asset-purchase programme has only had modest success. Stocks have rallied and a tumble in the yen has boosted exporters’ earnings, but a sustainable pick up in wages, business investment, inflation and broad economic growth have yet to take hold.
With the economy unexpectedly having slipped into recession in the third quarter, analysts say Abe will need a central bank board broadly supportive of his reflationary strategy, which includes massive government spending and structural reforms.
The prime minister is usually presented with a list of candidates prepared by the Ministry of Finance (MoF) in consultation with the BoJ. The prime minister’s endorsement is usually a formality.
Abe is likely to break with that tradition and intervene more heavily in the personnel choices, and is seen as being less receptive to the views of the MoF bureaucrats.
Government nominees for BoJ posts must be approved by both houses of parliament. Opposition parties turned down the ruling party’s nominees for governor in 2008, leaving the position vacant for three weeks.
However, Abe’s ruling coalition has a majority in both houses of parliament, so he does not have to yield to the opposition.
While a new line-up may make life easier for Kuroda, the BoJ board will remain divided because dissenters to October’s decision are suspicious of expanding QQE further, some analysts say.
“The dissenters in October’s action probably still feel they made the right decision,” as consumer sentiment remains gloomy in a sign the latest stimulus did little to boost confidence, said Izuru Kato, chief economist at Totan Research Institute.
