Published March 11, 2013
TOKYO – The Japan government's choice to lead the country's central bank promised on Monday to move quickly to implement fresh monetary stimulus to lift the struggling economy, a case underlined by a surprisingly sharp drop in a gauge of capital investment.
However, Haruhiko Kuroda's declaration that "speed is important" appeared to run into resistance from Bank of Japan board member Koji Ishida, who in separate comments voiced caution against taking unorthodox steps too hastily.
The divergence of opinion highlights that while the nine-member board generally agree on the need for further stimulus, there are differing views on how best to revive an economy that has struggled for consistent growth for years.
"I want to debate policy steps with the monetary policy committee and implement these steps as soon as possible," Kuroda told lawmakers in a one-day upper house confirmation hearing.
He said he would do what ever it takes to hit the Bank of Japan's inflation target of 2 percent. The economy has rarely seen that level of inflation since the early 1990s.
Kuroda is expected to be approved by parliament later this week because opposition parties, whose support is needed in the upper house, have indicated they would back him.
Supporters of the more aggressive monetary policy advocated by Prime Minister Shinzo Abe can point to a 13.1 percent drop in core machinery orders in January from December as highlighting the need for urgent action.
Analysts and government officials suggested the much weaker than expected figures released on Monday were a blip in a typically volatile data series, but they did show companies remained cautious in their spending plans. Analysts had expected a fall of just 2 percent.
Japan has been in deflation for most of the past two decades and figures last week showed that the economy edged out of its fourth recession since 2000 in the last quarter of 2012.
Critical of the BOJ's gradual easing steps under outgoing chief Masaaki Shirakawa, Abe last month nominated Kuroda to replace him. Kuroda has advocated bolder and swifter action such as buying more risk assets and more longer-dated government debt, points he repeated to the upper house.
"We're in an environment where there is limited room to lower interest rates further," Kuroda said. "That's why it is important to try to influence market expectations."
If approved by parliament, Kuroda would step down next week as president of the Manila-based Asian Development Bank and take over the BOJ after Shirakawa's term ends on March 19. The BOJ's next policy meeting is due on April 3-4, with financial markets expecting action.
"The next BOJ meeting under Mr Kuroda will ease monetary policy, which probably should be an aggressive one," said Akito Fukunaga, chief rates strategist at Royal Bank of Scotland in Tokyo.
Despite Kuroda's sense of urgency, the BOJ board has expressed a variety of views on how to move beyond its current policy of buying assets or making loans totaling 101 trillion yen ($1.07 trillion) by the end of 2013. That includes buying government bonds with maturities of up to three years.
In contrast to Kuroda's wish to move quickly, Ishida voiced caution, saying major changes to the current policy should only be considered after a thorough review.
"Changing this would be a big shift in its policy framework and would require a comprehensive examination of the purpose, means, costs and effects as well as the transmission channel of monetary policy," said Ishida, considered a moderate member of the board and who has voted with the majority most of the time.
He was speaking at a news conference after meeting business leaders in Utsunomiya, north of Tokyo.
Kuroda also said the BOJ should consider starting an open ended policy of asset buying earlier than 2014, the scheduled beginning date agreed at a policy review in January.
A similar proposal by board member Sayuri Shirai at the central bank's policy review last week was turned down by eight votes to one.
The sharp drop in seasonally adjusted core machinery orders in January followed three months of solid increases. The monthly decline was the second-biggest drop since 2005 after a fall of 14.8 percent in May last year.
The Cabinet Office said the orders, considered a leading indicator of corporate capital spending, overall were "showing signs of moderately picking up."
It blamed the sharp drop on declines in big-ticket items such as turbines and boilers and forecast they would rise 0.8 percent in the first quarter after a 2 percent increase in the final quarter of 2012.
"The fall was bigger than expected but I would still say this is a temporary fall," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"The yen's weakness helps expectations for exports to pick up and business sentiment has also been improving," he said.
Abe's prescriptions of monetary and fiscal stimulus, dubbed Abenomics, have so far helped drive the yen to 3-1/2 year lows against the dollar, supporting exporters such as Toyota Motor Corp <7203.T>.
Japan's financial markets were mostly focused on Monday on strong U.S. jobs data, which raised hopes for the outlook of the world's biggest economy.
Abe has also nominated academic Kikuo Iwata, who supports unconventional monetary policy, and BOJ official Hiroshi Nakaso as deputy governors. Their upper house confirmation hearings are on Tuesday.
The nominations must be approved by both houses of parliament. Abe's ruling camp controls the lower house but lacks a majority in the upper house.
(Additional reporting by Leika Kihara in Utsunomiya and Kaori Kaneko in Tokyo; Writing by Tomasz Janowski; Editing by Neil Fullick)