Bank of Japan nominees mix bold policies with caution

Tue Mar 5, 2013 4:22am EST
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By Stanley White and Tetsushi Kajimoto

TOKYO (Reuters) - The Japanese government's nominees for the Bank of Japan's two deputy governors offered contrasting policy views on Tuesday, as one described a bold path to meet an inflation target and the other often declined to commit to unconventional policy steps.

The differing views could raise questions as to how aggressive the BOJ will be as Prime Minister Shinzo Abe pushes for an overhaul of the central bank's management to encourage bolder monetary measures to end years of deflation.

Nominee Kikuo Iwata, an academic whose research focuses on inflation targeting, suggested the BOJ should buy longer-dated government bonds to reach its 2 percent inflation target in two years or sooner.

He said the central bank should target bonds with a maturity of five years or longer and was willing for such a mandate to be put into law. The BOJ currently buys bonds of up to three years maturity.

In contrast, Hiroshi Nakaso, a career BOJ official, said "it is hard" to say if the central bank can meet its inflation target in two years and there are limits to what monetary policy can do to end nearly 20 years of deflation.

Iwata's comments "show his commitment and strong determination to achieve the price target," said Yasuo Yamamoto, senior economist at Mizuho Research Institute.

"Nakaso is trying to take into consideration what the government expects, but he seems to be rather cautious in comparison," he said.

Yamamoto said the key is whether Nakaso and other members of the board will follow the more aggressive prescriptions of Haruhiko Kuroda, the nominee for central bank governor, and Iwata.   Continued...

Kikuo Iwata (L) and Hiroshi Nakaso, the Japan government's nominees to become Bank of Japan (BOJ) deputy governors, attend a hearings session at the lower house of the parliament in Tokyo March 5, 2013. REUTERS/Issei Kato