Kuroda expected to serve another term as governor

Posted on May 19, 2017

TOKYO -- Bank of Japan Governor Haruhiko Kuroda will most likely serve another five years after his first terms ends next April, according to a Reuters poll of analysts that also found strong support for other senior central bankers to replace him.

Whoever is in the post next year probably faces the difficult task of winding down his super-loose monetary policy, analysts agreed.

“It will be difficult for the BoJ to adopt what it has to do for an exit strategy whoever takes the post,” said Takeshi Minami, chief economist at Norinchukin Research Institute, who saw no reason to replace Kuroda.

More than half of the respondents gave Kuroda positive marks for his leadership, but a majority also saw negative side effects from his policy, including disruptions in the bond market.

The central bank has sought to lift Japan out of deflation. But after more than three years of huge asset purchases failed to spur inflation towards a target of 2%, the BoJ revamped its policy framework in September into one targeting interest rates instead of the pace of money printing.

It now aims to keep short-term interest rates at minus 0.1% and 10-year government bond yields at around zero%.

Thirteen of 30 economists forecast Kuroda will serve another five years after his first term expires next April, the poll taken May 8-16 showed.

There was some differences between who analysts expected to get the job and who they thought was the right candidate.

Only seven thought Kuroda was the “appropriate” choice.

Six economists expected BoJ Deputy Governor Hiroshi Nakaso to be promoted to governor, though only four thought he was the “appropriate choice.

Five expected Executive Director Masayoshi Amamiya to be the next governor, but nine thought he would be the right choice.

Other economists selected Financial Services Agency Commissioner Nobuchika Mori, Japan’s ambassador to Switzerland Etsuro Honda, an economic adviser to Abe, and Takatoshi Ito, a professor at Columbia University.

Twenty-two of 34 economists evaluated Kuroda’s policy management over the past four years favorably, while 12 analysts said they don’t really support his performance, the poll showed.

More than half the respondents said Kuroda’s policy has had negative side effects, such as volatility in the Japanese government bond market and an adverse impact on a financial industry from negative interest rates.

With markets accustomed to huge bond buying by the BoJ, any sign of a slowdown in its purchases has heightened volatility and prompted speculation it could withdraw stimulus earlier than expected.

Kuroda said on Tuesday he was “quite sure” the central bank could smoothly exit from its massive monetary stimulus when the appropriate time to do so came but he also said the bank “always” had room to expand monetary stimulus.

The majority of the economists surveyed project the BoJ’s next policy change would be pulling back its monetary policy -- a move four predicted would start later this year.

Four said it would happen in the first half of next year, eight in the latter half of next year and 10 said it would be sometime in 2019 or later.

“Core consumer prices are expected to rise towards 1%. And if it rises towards 1.5%, it would be difficult for the BoJ to leave its JGB yield target around zero unchanged,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute. “Even if the BoJ raises the yield target, its monetary policy will still be accommodative.”

The economists forecast the core consumer prices index, which includes oil products but not fresh foods, would rise to 0.7% this fiscal year and 0.9% next. These are slightly down from 0.8% and 1.0% projections made in April.

Japan, the world’s third-largest economy, is expected to grow 1.4% in the fiscal year that started in April and 1.0% next, the poll showed. These are compared with 1.3% and 1.1% projected respectively last month. -- Reuters