Wednesday, March 13, 2013

Kuroda Needs a Quick Kill

In a concession to DPJ sensibilities, the Abe administration nominated Haruhiko Kuroda twice, first to serve the remainder of Governor Shirakawa’s term from March 19 through April 8 and second for a full five-year term. Although Mitsuru Sakurai, the DPJ’s Policy Research Council Chairman, reportedly suggested that the DPJ could still vote against him on the second vote, it would be a highly unlikely turn of events, given the all-but-certain political fallout from negative media and market responses. However, this makes it somewhat less likely that the BOJ Policy Board will vote on April 4 on a further relaxation of monetary policy along the lines that Kuroda has been advocating.

Not that Kuroda can wait that long. The currency and equity markets have been positioned favorably for the Abe administration and Kuroda solely on policy expectations. Kuroda must match reality with those expectations sooner rather than later, or marker sentiment could swiftly turn against him and do serious harm to Abenomics. Thus, a second, extraordinary BOJ board meeting could be in order soon after Kuroda’s confirmation for the full five-year term. I won’t hazard to guess what the outcome would look like—stretching JGB maturities and changing the composition of purchases under the Asset Purchase Program should be easier to do at this point in time than the two measures just voted down eight to one—but much pressure will surely be brought to bear regardless on the rest of the Policy Board members.


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