The New Alpha Wolf
On Thursday, Asian Development Bank (ADP) President Haruhiko Kuroda was officially picked by Prime Minister Shinzo Abe to be the next governor of the Bank of Japan (BOJ).
His nomination, to say the least, greatly increases the chances of further monetary stimulus this year as he is known as a long time supporter of inflation targeting. In fact, Kuroda said in a speech earlier this month that additional easing is justifiable for 2013.
Mr. Kuroda, a man who is well-versed in the world of economics and international finance, is considered by market participants as a person with the perfect set of talents and skills for the job.
But as the head of the ADB, an organization that has a staff of over 3,000 and a yearly budget of $20 billion, Kuroda could be overqualified for the post. Some have even gone as far to say that Kuroda’s time is better well-spent somewhere else besides the BOJ (like the International Monetary Fund). Despite the criticisms, Kuroda is set to replace the current governor, Masaaki Shirakawa, on March 19.
Kuroda won’t be alone in his task to bring Japan out of deflation. Kikuo Iwata, who supports alternative monetary policy, and BOJ official Hiroshi Nakaso were designated as Kuroda’s deputy governors.
While Kuroda is in favor of increasing the purchases of government bonds, corporate bonds, and ETFs, Iwata likes buying longer-dated government bonds better. Nakaso, who mainly overlooks the central bank’s international operations, tends to be silent in his opinions on monetary policy.
What’s next for monetary policy?
The leadership change could cause the BOJ to lean towards a more expansionary monetary policy (even more loose than what it has now).
Abe, if you remember, has called for a 2% inflation target to be achieved as quickly as possible. Moreover, Abe also wants the BOJ to be more aggressive in stabilizing the yen.
In the last three months, the Japanese yen has declined roughly 11% against the U.S. dollar as traders speculate the prospect of a shift in the central bank’s stance.
It seems that market expectations are very high. With Japan’s economy down in the dumps, the market won’t be content with just a continuation of the easing policies set forth by the previous governor.
The new central bank officials must show that they will be tenacious on hitting those inflation targets. In fact, some analysts are saying that the new leadership could implement further easing as soon as April.
That being said, keep a close eye on Kuroda’s first ever policy-setting meeting. It will take place on April 3 and 4, following Shirakawa’s final meeting as governor on March 6 and 7.