New BoJ team unlikely to shake up economy

  • Business
  • Wednesday, 26 Feb 2003

TOKYO: The new team nominated to head the Bank of Japan (BoJ) will not be able to drag the nation out of its rut and will be no more successful than the present team in halting deflation, according to a poll of analysts and traders.  

Of the 48 people polled, about 80% felt there would be no change in how quickly Japan overcame deflation and the same percentage saw no change in the outlook for economic recovery after the nomination of Toshihiko Fukui as the next BoJ governor. 

Toshihiko Fukui

The overwhelming majority expected the BoJ to stick with conventional policies, with 82% feeling that an inflation target would not feature as part of the deflation fight. 

However, nearly 20% expected a stronger economic recovery and faster progress on reversing a three-year decline in prices under the new team. Hardly anyone felt the economic situation would worsen. 

Most respondents felt the BoJ would at least loosen monetary policy further by injecting more funds into the financial system. 

Fukui is a career central banker and widely regarded as a conservative on policy. 

However, Kazumasa Iwata of the Cabinet Office, who is known to favour unorthodox policies, and Toshiro Muto, until recently vice-finance minister in a government that has urged the BoJ to be more adventurous, will be his two deputies. 

“I hope the new governor and deputy governors will enable more communication between the BoJ and the government,” said Koichi Haji, chief economist at Nissay Research Institute. “But, in reality, it will be hard to escape from deflation regardless of who becomes governor or deputy governor.” 

Only 18% of those polled saw a chance of the BoJ adopting an inflation target to fight deflation, a controversial idea that has divided economists and government officials. 

Under inflation-targeting, the BoJ would agree on a target rate of inflation and would set policy to hit the target. 

Fukui told reporters after his nomination that inflation-targeting was no magic wand, but he said the issue deserved careful debate. 

That appeared to confirm suspicions that he shared a similar attitude to inflation-targeting as Hayami, who has called it a “reckless gamble” that might destabilise the economy and undermine trust in the central bank. 

“With Fukui sounding negative on inflation-targeting, I see a low possibility of it being adopted,” said Koji Takeuchi, senior economist at Mizuho Research Institute. 

But some respondents felt the two deputies might open up the debate in policy board meetings, which might clear the way for a change in policy some time in the future. 

“Fukui, as well as the BoJ, must be thinking that the BoJ’s increased buying operations have so far not had an effect on the economy, so there may be a higher chance they will do something new,” said Kiichi Murashima, an economist at Nikko Salomon Smith Barney. 

More immediately, some 91% of those polled believed the nine-member policy board would increase the flow of funds into the banking system by raising the amount of Japanese government bonds the BoJ buys every month from 1.2 trillion yen (US$10.18bil) – something the government has repeatedly asked the central bank to do. – Reuters  

  • Another perspective from The Yomiuri Shimbun, a partner of Asia News Network. 

    For more foreign business news click here


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