TOKYO, Mar 5: One of the men chosen by the Japanese government to overhaul central bank policymaking said that foreign bond purchases – one of the most radical ideas for beating deflation – would be a policy option only if other initiatives failed.
Any decision by the Bank of Japan to launch a programme of buying up foreign bonds would be expected to draw criticism from Japan’s trading partners that it was setting out to devalue the yen and risking the outbreak of a global currency war.
Kikuo Iwata, nominated by the government for one of the central bank’s two deputy governorships, said on Tuesday that the first choice for the BOJ should be to try to lower long-term rates by purchasing longer-dated Japanese government debt.
‘As a central bank, I don’t think it’s a good idea to exclude some policies in advance,’ said Iwata, 70, an academic known for his work on monetary policy and inflation targeting.
‘If we cannot meet the inflation target then I would want foreign bond purchases to remain an option,’ he said at a confirmation hearing at the lower house of parliament.
The BOJ must also work to achieve its 2 percent inflation target within two years at the latest, Iwata said, explaining the bold monetary path he would want the BOJ to follow.
Prime Minister Shinzo Abe nominated Iwata, a professor at Tokyo’s Gakushuin University, as part of a push for more aggressive monetary easing to end nearly two decades of deflation.
Abe’s nominations for the Bank of Japan’s leadership have to be approved by both houses of parliament, including his choice of Haruhiko Kuroda, who also favours a much more aggressive monetary stance, as the bank’s next governor.
Iwata also said Japan could reach its inflation target in less than two years if it revised the law to explicitly give the BOJ the freedom to choose how it would encourage inflation.
Hiroshi Nakaso, the government’s nominee for the BOJ’s other deputy governorship, said on Tuesday he would guide monetary policy without being bound by precedence.
Nakaso, 59, heads the BOJ’s international operations.
The current BOJ governor will leave office on March 19 along with his two deputy governors.
Abe’s ruling coalition has a majority in the lower house, so his nominees are likely to be approved in that chamber. He lacks a majority in the upper house but is likely to garner enough support for his nominees from opposition parties there.
(agencies)
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