Friday, March 08, 2013

The Kuroda Monetary Easing and the Question of When

Haruhiko Kuroda, the BOJ governor nominee, and the two deputy governor nominees are going to be appointed, no question about that. It is also widely believed that Kuroda will push for further monetary easing when the BOJ Policy Board meets for its next monthly session on April 3 and 4, or, less likely, even sooner in a yet-to-be-scheduled extraordinary session after the almost-done-deal March 19 appointment. Kuroda’s menu consists of 1) moving up the commencement, currently scheduled for January 2014, of the monthly 13 trillion yen purchases under the BOJ Asset Purchase Program, 2) easing or doing away with the BOJ rule that caps BOJ’s Japanese government bond (JGB) holdings at the total value of BOJ notes (all legal tender minus coins), 3) extending the maturity of Program-eligible JGBs, currently at three years maximum, and 4) changing the composition of purchases under the Program, currently scheduled post-January 2014 as 2 trillion JGBs, 10 trillion T-Bills, and the remainder to maintain the existing level of other assets (corporate bonds, commercial paper, etc.). What are the chances of Kuroda making headway on these items?

The Board has nine members, so Kuroda needs five votes to make any changes. Today’s (March 8) hardcopy Yomiuri casually reports that Board member Sayuri Shirai proposed 1) and 2) at the March 6-7 Board meeting and was voted down 8 to 1. Assuming that the two new deputy governors follow Kuroda’s lead, it only takes one Board member to change his mind—Shirai is the only woman on the Board—for a majority. But so soon after the March 7 vote? It can happen—the Abe administration could lean on the former Mitsui-Sumitomo Bank executive, while the former TEPCO executive looks particularly vulnerable to government pressure—but it’s not a sure bet, particularly with regard to 1) and 2), for the April session.

Take note, also, that purchase of assets denominated in foreign currencies is off the board for the foreseeable future. No matter what Prime Minister Abe may have said in the past, the political costs on the international front are too big. Japan is not South Korea or Switzerland. A good analogy is whaling, where Japan, not Norway, takes most of the flak.

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