February 16, 2018 / 2:13 AM / 6 months ago

Instant View - Kuroda reappointed as BOJ chief, reflationist academic picked for deputy

(This Feb 16 story, corrects economist’s name in third comment to Masaaki Kanno, not Masayoshi Kanno.)

TOKYO (Reuters) - Japan’s government on Friday reappointed Bank of Japan Governor Haruhiko Kuroda for another term and chose an advocate of bolder monetary easing as one of his deputies, a sign the central bank will be in no rush to dial back its massive stimulus programme.

The selection of the new BOJ leadership comes at a crucial time for Japanese and global markets, which have been rattled in recent weeks on expectations major central banks will whittle down their crisis-mode stimulus.

The deputy governor nominees are Waseda University professor Masazumi Wakatabe and BOJ Executive Director Masayoshi Amamiya.

YUSUKE IKAWA, JAPAN STRATEGIST, BNP PARIBAS

“Wakatabe has said the BOJ should raise the pace of increase in its JGB holdings to 90 trillion yen. But that doesn’t seem to be workable.

“It seems like Kuroda came up with the idea of a reversal rate last year to counter calls for more easing by reflationists. But that ended up stoking market speculation about an exit from its current easing policy.

“So, ironically, by bringing in more reflationists on the board, Kuroda may have to make more counter-arguments and confuse market players, making markets more volatile.”

TAKUJI AIDA, CHIEF ECONOMIST AT SOCIETE GENERALE SECURITIES

“The BOJ will be more cautious about an exit, because its new leadership is more reflationary. Amamiya has drafted quantitative easing policies and Wakatabe is pro reflationary policies.

“The BOJ will stick with its current policy as long as possible, and the 2 percent inflation target remains intact. I see no change to ETF purchases. A change to the 10-year yield target may be possible, but that would take about a year.

“Wakatabe is a good choice. He has a very strong theoretical background in reflationary policy and understands the need to expand nominal gross domestic product. His appointment should help Japan by creating the environment to expand investment and raise productivity.”

MASAYOSHI KANNO, CHIEF ECONOMIST AT SONY FINANCIAL HOLDINGS

“Both Wakatabe and Iwata are reflationists and academics, there is no major change to the balance from the current BOJ governor and deputy governors.

“To keep one reflationist in the top three BOJ members appears to be reflecting the government’s intention ...

“One focus will be how the position of the quantitative element of the BOJ’s monetary policy will be as the bank has shifted its target to interest rates ... Wakatabe appears to be an advocate of expanding quantitative easing, so a key will be whether the BOJ’s board members will be unified.

“Another focus will be fiscal spending. Wakatabe may propose a policy to cooperate with fiscal spending, while Governor Kuroda, who was a former finance ministry official, is more for fiscal health.”

TAKEHIRO NOGUCHI, SENIOR ECONOMIST, MIZUHO RESEARCH

“Wakatabe has been calling for an increase in the BOJ’s JGB buying but practically that will be difficult. It will be interesting to see what he says the BOJ should do to achieve its policy goal after he joins the BOJ, given that some reflationists have changed their stance once they have become BOJ insiders.

“The bond market will look at the possibility that the pace of reduction in the BOJ’s bond buying could slow. Given the yen’s rise, it will be difficult for the BOJ to adjust its 10-year yield target this year. There is risk that the economy could slow before the BOJ exits from the current stimulus.”

NORIHIRO FUJITO, SENIOR INVESTMENT STRATEGIST AT MITSUBISHI UFJ MORGAN STANLEY SECURITIES

“In the short term, the BOJ gave the stock market relief by not derailing Kuroda’s monetary policy. It sent a message to the market that the main part of Abenomics will not change. It must have made the right choice by selecting Wakatabe and Amamiya when the market is volatile.

“But the BOJ failed to address the underlining question that the market has had — how to exit from its radical monetary policy while mitigating the impact on the market.

“The market may have been relieved to learn that monetary stimulus will continue for a longer period. But only the BOJ is conducting ultra-easy stimulus for 10 years while other central banks around the world are going to tighten under rising inflation...

“What will foreign investors think of that? The BOJ will have to exit from its monetary stimulus eventually. It pushed back the answer and has left the market to keep wondering about the big question.”

SHUSUKE YAMADA, CHIEF JAPAN FX/EQUITY STRATEGIST AT BANK OF AMERICA MERRILL LYNCH

“There are no significant changes to the current BOJ regime with the governor chosen for another term, and a central banker and a reflationist academic picked as his deputies.

“This should clear some uncertainty regarding BOJ personnel, but it unlikely to impact the currency market at a time when the dollar is broadly weaker.

“Wakatabe probably won’t affect monetary policy immediately but it remains to be seen how he gets involved if the BOJ is faced with the prospect of more easing going forward.”

Reporting by Shinichi Saoshiro, Ayai Tomisawa, Hideyuki Sano, Kaori Kaneko, Stanley WhiteEditing by Chris Gallagher and Chang-Ran Kim

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