Abe sticks with reflationist balance on BOJ board

Tokyo

PRIME Minister Shinzo Abe kept the number of reflationists on the Bank of Japan (BOJ) policy board unchanged on Tuesday, sending a strong signal of continuity for central bank policy.

Mr Abe's administration chose Seiji Adachi, head of economic research at Marusan Securities, to replace Yutaka Harada on the policy board, according to a statement distributed by a parliamentary committee Tuesday.

The Diet is likely to approve the nomination before Mr Harada ends his five-year term on March 25 to avoid a vacancy on the board.

Mr Adachi co-wrote a book in 2013 alongside Mr Harada and others just before the BOJ launched its massive easing programme that sets him at the heart of the reflationist movement in Japan.

The nomination of Mr Adachi, 54, is for one of the nine seats on a board that is expected to keep policy on hold for a while. With limited policy tools and relative stability in foreign exchange rates, a majority of economists expect the bank's next eventual policy step to be tightening.

"Adachi's a person right at the center of the reflationists," said Yuji Shimanaka, chief economist at MUFJ Morgan Stanley. "The Abe administration has shown a clear position in support of aggressive easing."

Mr Abe's selection has been under close scrutiny by BOJ watchers looking for clues on his current stance on monetary policy amid signs that achieving the inflation target may not be at the top of his priorities.

Marusan Securities said Mr Adachi wasn't available to comment.

The 2013 book focuses on spurring prices to restore growth in the Japanese economy and was published shortly before governor Haruhiko Kuroda unveiled his easing programme to lift the economy out of deflation and achieve 2 per cent price growth.

The authors included former BOJ deputy governor Kikuo Iwata and Koichi Hamada, a member of Mr Abe's original brain-trust of reflationists, who advised on the nomination of Mr Kuroda and other BOJ board members.

Current deputy governor Masazumi Wakatabe also contributed to the book.

In more recent commentary in columns Mr Adachi has written for Money Gendai, an online media site run by major Japanese publisher Kondansha Ltd, he has argued that the BOJ's monetary policy from 2013 onward has been effective in getting out of deflation, and it's important that this positive direction isn't stopped.

Mr Adachi said in an October column for Money Gendai that it would be "outrageous" to argue that both negative rates and quantitative easing policies should be ceased due to a lack of effectiveness. Still, he said increasing purchasing of ETFs (exchange-traded funds) was a better option for additional easing than lowering negative rates further.

This year the BOJ faces one of its biggest leadership shakeups since Mr Kuroda took the helm in 2013. Two out of nine board members and several senior officials will probably be replaced over the coming months in moves that will help shape the thinking of the BOJ amid growing speculation its next eventual move will be to normalise policy.

Some 76 per cent of economists had expected Mr Harada, a consistent dissenter to BOJ board decisions, to be replaced by another like-minded reflationist, according to a Bloomberg survey. Yukitoshi Funo, a former Toyota executive, will also step down at the end of June, and would typically be replaced by another representative of corporate Japan.

Despite Mr Adachi's reflationist credentials, economists don't see his appointment changing the direction of BOJ policy back toward a more quantitative easing-focused easing approach.

"It's become clear what was possible during the Kuroda regime and what was not. Expectations for what reflationists can do have been shrinking," said Nobuyasu Atago, chief economist at Okasan Securities and former head of the BOJ's price statistics division.

Like Goushi Kataoka, Mr Adachi may dissent from the current policy arguing that it's not accommodating enough, but that won't change the direction of policy as he will still be part of a minority, Mr Atago added. BLOOMBERG