The Bank of Japan (BOJ) might boost stimulus in the wake of a vote by the upper house of Parliament to block a nominee to its board and a call by lawmakers for a more “proactive” monetary policy.
Bloomberg reported Friday that the BNP Paribas economist Ryutaro Kono was rejected by Parliament at a time when two vacancies already exist on the nine-person board and more are to come. The terms of two deputy governors will end in March 2013, and Governor Masaaki Shirakawa’s term ends in April of that year.
However, Kono was voted down after the Liberal Democratic Party, the largest of the opposition groups, objected to his nomination. That party is working on a bill that would allow the government more influence over monetary policy. Kono was described by Goldman Sachs as holding similar views to Shirakawa, who says that monetary policy alone cannot solve deflation.
Takeshi Miyazaki, a Democratic Party of Japan lawmaker and a leader of the governing party’s anti-deflation group, was quoted saying, “Proactive monetary policy is necessary to escape from deflation and end the strengthening yen. The main priority should be someone who is promoting monetary easing.”
Morgan Stanley MUFG Securities Co., Mizuho Securities Co. and SMBC Nikko Securities have said that they expect BOJ to expand asset purchases at an April 27 meeting.
Akio Makabe, an economics professor at Shinshu University in central Japan, was quoted saying, “The BOJ must be struggling to balance between responding to political requests and operating effective monetary policies.”
Finance Minister Jun Azumi said Friday that candidates for the BOJ board shouldn’t be chosen only on their belief in monetary easing, since such views could hamper policy flexibility.
Chief Cabinet Secretary Osamu Fujimura was quoted saying, “It’s a shame that this didn’t get approved. This won’t cause problems for running the policy board immediately, but this is not a desirable situation.”
Kono said in a statement that politicians were pushing monetary policies that are “divorced from reality.” He also said that perception of him as negative about an inflation target was a misunderstanding, and added that a 2% goal could be suitable for Japan in the long term.
“Japan’s imminent issues are to reform the social security system and to achieve fiscal health and so I think raising taxes is inevitable,” he said, since those goals can’t be reached through monetary policy.