AP News

BOJ holds first policy meeting under new governor


TOKYO (AP) — Japan's central bank is holding its first policy meeting under a new governor amid expectations of fresh moves to ease monetary policy and spur a recovery in the world's third-largest economy.

Haruhiko Kuroda took the helm at the Bank of Japan on March 19, vowing to do whatever necessary to break Japan's economy out of deflation and attain a 2 percent inflation target.

It is unclear whether the central bank meeting Wednesday and Thursday will yield fresh policy moves or if they might come in a second policy meeting later this month, once parliament gives final confirmation of Kuroda's appointment.

Acting government spokesman Hiroshige Seko said the government would leave the mechanics of how to "reflate" the economy up to the BOJ.

"Regarding the specific instruments chosen by the BOJ, we would like to respect their independence," Seko said in a routine briefing.

But Kuroda faces strong pressure to make headway in ending the trend toward flat or lower prices that Prime Minister Shinzo Abe's administration says is discouraging companies from investing and hiring workers.

"I hope they will have a drastic regime change and invite aggressive monetary easing," Kozo Yamamoto, a lawmaker in Abe's circle of economic advisers. Attaining a 2 percent inflation rate within the next several years may be difficult, he acknowledged.

"That's why we need very, very drastic action," Yamamoto told a gathering of executives Wednesday at the American Chamber of Commerce.

Among various options, the BOJ could increase its asset purchases sooner than earlier promised. It could extend maturities on the government bonds it buys to five or 10 years, rather than the current limit of three years. It also could consider buying higher-risk assets, instead of just government bonds.

In the final quarter of 2012, the economy was on the cusp of recovery, recent data show. A quarterly central bank survey released Monday, known as the "tankan," showed business sentiment improving for the first time in nine months, though the gains were weaker than expected.

But so far, the consumer price index has not budged, despite daily newspaper reports of plans for increases in electricity rates, food prices and other daily necessities. The bank's survey showed companies are still planning to reduce investments in the coming year, contrary to expectations.

Kuroda and Abe already are battling skepticism over whether the government's strategy will spur enough demand to get the economy back on track, given the reluctance of companies to invest or raise wages. Expectations of price increases will only spur people to spend more money if they can afford to, Kazuhiro Haraguchi, a member of the opposition Democratic Party of Japan, contended during a parliamentary session Tuesday.

"If prices rise and wages do not, that is not desirable," Kuroda responded without elaborating.

Abe has already delivered on one of the three main elements of his economic strategy — boosting public spending, especially on public works projects. Easing monetary policy, another key item on his agenda, is a work in progress. As for the third, the LDP and Japan's powerful bureaucrats are still thrashing out details of reforms to sustain growth in the long run.

Bowing to government pressure, the central bank, then under Kuroda's predecessor Masaaki Shirakawa, committed to the 2 percent inflation target and to increasing asset purchases to help boost the amount of funds in circulation. According to Yamamoto, still more must be done.

An economist and former Finance Ministry official, Yamamoto said he believes Japan's monetary base — the amount of funds in circulation — must be doubled to attain the pace of growth needed.

He downplayed worries that such a strategy could spur hyperinflation, saying the central bank would quickly move to staunch any tendency by tightening monetary policy.

Yamamoto likewise dismissed concerns over the potential impact of still higher spending on Japan's already debt-strained finances, saying that higher tax revenues would take care of that problem, though perhaps not by 2020 — the target set for reaching a fiscal balance.

Kuroda and other top BOJ and Finance Ministry officials have been forthright about the need to rein in public spending.

Having raised expectations, the challenge now is in reassuring skittish financial markets.

The share price rally that began late last year, even before Abe's Liberal Democratic Party took power after winning a lower house parliamentary election, already appears to be losing steam, though the benchmark Nikkei 225 stock index rebounded Wednesday, gaining 3 percent to 12,362.2.

Meanwhile, the Japanese yen has regained some ground against the U.S. dollar after falling about 20 percent on expectations Abe would seek to weaken it to help boost export manufacturers. It was trading at about 93.4 to the U.S. dollar late Wednesday, compared with its recent peak of 96.7.


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