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Japan government picks banker, reflationist economist for BOJ board
April 18, 2017 / 8:28 AM / 7 months ago

Japan government picks banker, reflationist economist for BOJ board

TOKYO (Reuters) - Japan’s government nominated a reflation-minded economist and an executive from a megabank which has been critical of radical monetary easing to join the central bank’s nine-member board, in a choice seen as maintaining the status quo on monetary policy.

FILE PHOTO - A Japanese flag flutters atop the Bank of Japan building in Tokyo, Japan, September 21, 2016. REUTERS/Toru Hanai/File Photo

The nominations, presented to parliament on Tuesday, suggest the Bank of Japan will maintain its massive stimulus but with an eye on concerns held by the country’s banks that its policy of capping bond yields is hurting profits, some analysts say.

One of the nominees, Goushi Kataoka, a 44-year-old economist at Mitsubishi UFJ Research and Consulting, has been a vocal advocate of premier Shinzo Abe’s reflationist policies including the BOJ’s huge asset-buying programme.

The government also nominated 63-year-old Hitoshi Suzuki, a director for Bank of Tokyo-Mitsubishi UFJ, to join the board.

“One is an economist reflecting the government’s reflationist stance and another is a bank executive who probably dislikes excessive easing. It’s a well-balanced choice,” said Hiroshi Shiraishi, an economist at BNP Paribas Securities.

The two would replace former market economists Takahide Kiuchi and Takehiro Sato, whose five-year terms end in July.

The nominations suggest BOJ Governor Haruhiko Kuroda would have fewer opponents of his massive stimulus programme, as both Kiuchi and Sato were openly against keeping the bank’s unorthodox policy in place for too long.

MENDING STRAINED RELATIONS

After three years of heavy money printing failed to accelerate inflation to its 2 percent target, the BOJ revamped its policy framework last September to one better suited for a long-term battle to beat deflation.

Under the new framework, the BOJ now guides short-term interest rates to minus 0.1 percent and the 10-year government bond yield around zero percent via asset purchases.

An advocate of aggressive asset purchases, Kataoka has called for reigniting Japan’s economy through bold monetary and fiscal stimulus measures.

“I think he would place emphasis on getting Japan out of deflation,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management.

“I think he would be cautious about reducing monetary easing,” said Kichikawa, who knows Kataoka well.

Little is known of Suzuki’s stance on monetary policy, though he is unlikely to rock the boat given his background as a banker from one of Japan’s top financial institutions.

Some analysts say Suzuki may serve as a counter-balance to a board dominated by reflationist-minded members, as he could be more vocal of the pain ultra-low interest rates are inflicting on banks.

Bond traders were stunned last year when Bank of Tokyo-Mitsubishi UFJ (BTMU), one of the nation’s three megabanks, said it was giving up its status as a primary dealer of Japanese government bonds.

The move was seen as the clearest and most public display yet of growing distaste over the BOJ’s negative rate policy by one of the biggest players in the government bond market.

An expert of financial markets, Suzuki could help the BOJ communicate its policy intentions more clearly to markets in the event of an exit from its massive stimulus, they say.

Others say the choice of a bank executive may be an attempt by policymakers to mend relations between the BOJ and the banking sector - strained after the central bank’s abrupt decision last year to adopt negative interest rates.

“The nomination of Suzuki signals a return to the days an executive from a major Japanese bank always held a position at the BOJ board,” said Tetsuya Inoue, chief researcher at Nomura Research Institute.

“It’s a positive move in terms of enhancing the BOJ’s communication with markets.”

The appointments need approval by the upper and lower houses of the parliament, which are considered a near certainty as the ruling coalition holds a solid majority in both chambers.

Additional reporting by Stanley White, Kaori Kaneko and Izumi Nakagawa; Editing by Chang-Ran Kim and Kim Coghill

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