Japan govt nominates BNP Paribas economist to BOJ board

By @ibtimes on

Japan's government on Friday nominated the chief economist for BNP Paribas in Tokyo, Ryutaro Kono, to join the Bank of Japan's policy-setting board, which would add an advocate of anti-deflation policies who's considered a strong communicator.

Kono, 47, a member of multiple panels advising the government including one on fiscal reform, would replace Seiji Nakamura, who has seldom rocked the boat in policymaking and whose term expires on April 4.

The nomination of Kono for a five-year term on the BOJ's nine-member policy board must be approved by parliament, which in recent years has approved all the BOJ's nominations.

Kono, who has served as an economist at financial institutions since the late 1980s, would join the central bank shortly after it surprised the markets with unexpected monetary easing and a new inflation goal of 1 percent.

I think Kono will play the role of communicator with the markets, said Takuji Okubo, chief economist at Societe General Securities. He's actually a fairly moderate person. He could be more active than other board members as some members tend to be more quiet and less knowledgeable of monetary policy.

Okubo described Kono as dovish on monetary policy. He nudges the balance to the dovish side, but I don't think he will put forward very radical easing measures.

Kono, who regularly publishes analyses of monetary policy, the economy, politics and markets, has argued that monetary policies are the only tool that policymakers can mobilise to fight deflationary shocks. But he has also warned of side effects from keeping ultraloose policy for too long.

He has also said it was one of the central bank's responsibilities to tame the yen's strength when a deflation trend continues.

The BOJ cannot help but to take additional policy if big deflationary shocks arise but prolonged zero rate policy and government bond buying by the BOJ have big side effects so it is problematic for the BOJ to easily move for additional easing in response to small shocks, he wrote in a recent report.

As zero rate policy and government bond purchases by the central bank facilitate smooth government borrowings, such policies could be indirectly impeding on economy's return to growth as a trend.

Some of Kono's views are similar to those of BOJ Governor Masaaki Shirakawa, who has warned of the drawbacks of keeping monetary conditions too easy for too long.

It is not unusual for the government to pick someone from financial markets for the BOJ board, which currently includes academics, banker, a former International Monetary Fund economist and former business executives. Kono would be the youngest on the board, along with Ryuzo Miyao, a former academic.

Analysts say Kono's connections with the financial market may help increase the transparency of BOJ monetary policy.

Last month, the BOJ surprised markets with a 10 trillion yen ($120 billion) increase in its asset-buying programme as it set an inflation goal of 1 percent. The bank held policy steady at a policy-setting meeting last week.

A nomination needs to be approved by both chambers of parliament, including the opposition-controlled upper house.

ANOTHER REPLACEMENT COMING

BOJ board nominations have at times been contentious and drawn-out in a split parliament but recent nominees, such as Koji Ishida, a veteran banker who joined the board in June last year, were approved easily.

Analysts say the opposition may try to slow the process but the BOJ's monetary policy would be little affected.

The government has yet to put forward a candidate to replace Hidetoshi Kamezaki, whose term also expires on April 4.

The Nikkei newspaper reported earlier on Friday that the government had been Kouhei Watanabe, an advisor at trading house Itochu Corp <8001.T>, to replace one of the outgoing board members. The government dropped the nomination after it was leaked to the press, a lawmaker told reporters in parliament.

The government could again pick a businessperson, possibly a trading house executive, to succeed Kamezaki.

Outgoing board member Nakamura, who used to head a unit of a Japanese freight firm, has mostly voted with the majority and toed the central bank's official line on the economy.

Kamezaki, the other outgoing member and a former business executive, voted with the board's majority but repeatedly stressed the need to act pre-emptively against risks to Japan's economy, such as yen appreciation.

(Additional reporting by Stanley White and Shinichi Saoshiro; Editing by Tomasz Janowski)

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