Analysis: BoJ's Kuroda tested by divided board

Tue Apr 2, 2013 6:38am EDT
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By Leika Kihara

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda is struggling to build a consensus ahead of his first central bank board meeting this week, risking disappointing markets that expect hefty bond purchases and a radical shift in its policymaking framework.

Conversations with sources since last week have thrown up the possibility that Kuroda may not be able to sway a board divided on how much the BOJ should ramp up bond buying and how to convince markets it will not monetize public debt.

Just two weeks into the job, Kuroda told parliament on Tuesday he wants to combine the BOJ's two bond-buying operations to clarify how much it is expanding its balance sheet, and that he would debate with the board targeting longer-dated bonds in expanding stimulus.

But failure to mend the gap with board members before Thursday's decision would mean Kuroda, who has promised to do whatever it takes to restart Japan's economy, would either have to put off some of his plans until another rate review on April 26, or push them through at the risk of a split vote.

The sources familiar with the BOJ's thinking said Kuroda was likely to muscle through most of his plans, but a split vote would test his leadership and cast doubt on whether he can commit the BOJ to further unorthodox measures.

"The BOJ doesn't necessarily have to decide on everything this week. Trying to do so could expose to markets the rift within the board," said Yasunari Ueno, chief market economist at Mizuho Securities in Tokyo.

"In any case, there's simply not enough time to discuss so many factors that come into play. The key is how Kuroda manages to sustain market expectations."

The BOJ is likely to start open-ended asset purchases immediately, rather than in 2014, boost bond buying and extend the maturity of bonds it buys in easing policy this week, ideas that have been floated on the board even before Kuroda joined the central bank, sources have told Reuters.   Continued...

Bank of Japan's (BOJ) Governor Haruhiko Kuroda attends the upper house Financial Affairs committee of the Parliament in Tokyo March 28, 2013. REUTERS/Yuya Shino