Japan’s government has nominated a dovish economist to the board of the Bank of Japan in a signal that prime minister Shinzo Abe is committed to a programme of massive monetary easing.
Despite growing complaints from banks about the downside of negative interest rates, the selection of Seiji Adachi, a noted “reflationist”, suggests Mr Abe will not back away from his signature stimulus programme, known as Abenomics.
Once confirmed by the Diet, Japan’s parliament, Mr Adachi will replace Yutaka Harada, another dovish policymaker, maintaining the balance of power on the nine-member BoJ policy board. Mr Abe’s party controls the Diet and nominations are usually confirmed promptly.
“The key message of this nomination is not the selection of Mr Adachi himself but what the Abe administration is thinking about the BoJ,” said Masamichi Adachi, chief economist at UBS in Tokyo, who is not related to the nominee.
“It suggests the Abe administration is comfortable with the current balance: having a minority of reflationists and a majority of neutrals on the BoJ board,” he said.
At present, the BoJ board has three members regarded as aggressive reflationists, who would like to ease policy further to achieve the central bank’s 2 per cent inflation objective more rapidly, and six neutrals who support the easing carried out by governor Haruhiko Kuroda, but are not pushing for more.
Mr Abe’s appointment of Mr Kuroda in 2013 led to a signature monetary stimulus, with huge purchases of government bonds to drive down long-term interest rates, later followed by a negative overnight interest rate and a cap on 10-year bond yields at zero.
But despite slashing interest rates, the BoJ has failed to hit its inflation objective, and Japan’s economy is struggling to overcome a recent rise in consumption tax from 8 per cent to 10 per cent.
Mr Adachi is a former economist at Deutsche Bank and most recently the head of economic research at Marusan Securities. In 2013, he helped to write a book called Reflation Will Save Japan’s Economy. Among his co-authors were Koichi Hamada, the Yale professor regarded as one of the main architects of Abenomics, as well as Kikuo Iwata and Mr Harada, who both went on to serve on the BoJ board.
The next BoJ board member to stand down will be former Toyota executive Yukitoshi Funo at the end of June. Mr Funo is regarded as a neutral on monetary policy, so if the prime minister appointed a dove to replace him, it would signal a push for more aggressive stimulus.
Source: Economy - ft.com
