Changes at the top at the Bank of Japan could open the door to more monetary easing to deal with the impact of the Covid pandemic.
The country’s Parliament approved the government’s nominee for the bank’s board, Asahi Noguchi, on Wednesday, a move that could see stimulus ramped up to offset fears of deflation.
Noguchi is an academic and a vocal backer of ‘heavy money printing’ and will join the BOJ’s nine-member board in April.
He succeeds Makoto Sakurai, who has previously warned of the rising cost of prolonged easing, when his five-year term ends in March.
The central bank has no immediate plan to exit ultra-loose monetary policy as the hit to the economy from the coronavirus pandemic pushes inflation further away from its 2% target.
But the bigger presence of doves may complicate the BOJ’s ongoing strategy to gradually slow asset purchases and make its policy sustainable enough to endure what will be a long-term battle to spur growth, say sources familiar with its thinking.
“The risks of ramping up stimulus are clear. But with a bigger presence, the (doves) would have a stronger say over the BOJ’s policy priorities,” one of the sources said.
“While it may not immediately affect policy moves, numbers do matter,” another source said.
As an academic, Noguchi has preached the benefits of ‘Modern Monetary Theory’ (MMT), a controversial theory floated by US academics that says central banks can print unlimited amounts of money to bank-roll government debt.
The addition of Noguchi would leave four of the BOJ board’s nine seats in the hands of the reflationists, giving them power to push back against the governor’s proposals if there is just one swing vote.
Split votes are rare at the consensus-favouring BOJ. But big policy shifts have recently led to a narrow 5-4 vote including the BOJ’s decision to adopt negative interest rates in 2016.
“Noguchi’s nomination is a sign the government wants the BOJ to keep its money spigot wide open,” said Izuru Kato, chief economist at Totan Research and a long-time BOJ watcher.
- Reporting by Reuters