Japanese Prime Minister Shinzo Abe nominated Asian Development Bank President Haruhiko Kuroda to lead the nation’s central bank, raising the likelihood of further monetary stimulus this year.
Kikuo Iwata, a professor at Tokyo’s Gakushuin University who advocates greater government oversight of the Bank of Japan (8301), and BOJ Executive Director Hiroshi Nakaso were nominated for the two deputy governor positions, the nation’s parliament said in a statement today. Current Governor Masaaki Shirakawa and his deputies will step down on March 19.
The regime change may tilt Japan’s central bank toward a more expansionary monetary policy as Abe calls for a 2 percent inflation target to be reached as soon as possible. The yen has fallen about 11 percent against the dollar in the last three months as investors assess the possibility of a shift in the BOJ’s stance, with JPMorgan Chase & Co. saying that the new leadership could implement more stimulus as early as April.
“Expectations are high, and markets won’t be satisfied with just an extension of current policies,” said Masamichi Adachi, senior economist at JPMorgan in Tokyo. “The new leadership has to show it is different from the previous regime.”
Kuroda, 68, advocated an inflation target more than a decade before the central bank adopted one in January, and said this month that additional easing can be justified for 2013.
The first policy meeting for the new leadership is scheduled for April 3-4, after Shirakawa’s last meeting as governor on March 6-7. The deputy governors leaving are Kiyohiko Nishimura and Hirohide Yamaguchi.
The yen extended its decline for the month on speculation Kuroda will pursue increased stimulus, and was 0.2 percent lower at 3:47 p.m. in Tokyo. The Nikkei 225 Stock Average closed 2.7 percent higher for the longest monthly winning streak since 2006.
Shirakawa helped avert damage to Japan’s financial system during the 2007-2009 global credit crisis and in the aftermath of Japan’s record March 2011 earthquake, while failing to defeat deflation. A gauge of consumer prices excluding fresh food and energy has been negative every month since January 2009.
The central bank in January announced that it will shift to open-ended asset purchases starting next year, with no additional stimulus for 2013. Currently, the central bank buys securities such as government bonds and exchange-traded funds through a fund targeted to reach 76 trillion yen ($822 billion) in assets in December 2013.
“The market’s focus is shifting to Kuroda, who is expected to do what Shirakawa couldn’t, such as buying risk assets and bonds on a larger scale,” said Kenji Yumoto, vice chairman of the Japan Research Institute in Tokyo.
Abe needs opposition support to get his nominees through the upper house of parliament, where his Liberal Democratic Party lacks a majority. The ruling party wants committee hearings on the nominees next week, opposition lawmaker Shu Watanabe told reporters today.
Lawmakers in the main opposition party have said they will back Kuroda while expressing reservations about Iwata, a longtime central bank critic. The Democratic Party of Japan will seek to decide on the nominations by March 15, party leader Banri Kaieda said today.
The nominees will attend hearings in each house of parliament, where lawmakers can question them. After the hearings, both houses vote on the nominations. The vote could come as soon as Mar. 11, according to a rule which says the government should try to allow about 10 days between the nomination and a confirmation vote.
In 2008, two appointments for governor were rejected by the upper house, leaving the position vacant for about three weeks. While the DPJ signals resistance to Iwata, two other opposition parties show support, increasing the chance that Abe gets approval for his full slate of nominees.
Confirmations would yield him a win on his biggest agenda item since he took office in December vowing to lift Japan out of 15 years of deflation.
The new leadership team will complete an overhaul of the central bank’s board after the former government last year placed Takahide Kiuchi, a former Nomura Securities Co. economist, and Takehiro Sato, previously of Morgan Stanly MUFG Securities Co., on the nine-member panel.
Kiuchi said in a speech in Yokohama, near Tokyo, today that the central bank will consider further easing if needed, while stressing that reaching the 2 percent target will not be easy.
Kuroda was the Finance Ministry’s senior official in charge of foreign-exchange issues from 1999 to 2003, succeeding Eisuke Sakakibara, who was known as “Mr. Yen” for the influence he wielded over currency markets. He also served as a special adviser to the cabinet of Prime Minister Junichiro Koizumi. He has led the Asian Development Bank since 2005.
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