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Monday, February 24, 2003

Bank of Japan: the Speculation is Over

Well finally the speculation is over, and Japan has got a new governor for its central bank. Much to the sighs of disappointment across the planet, the newcomer is not an inflation targeter, in fact he is a tried and trusted member of the old guard, so in theory this means more of the same. But since nothing is ever completely predictable, and even less so in Japan, we may still see some surprises. Japan is, after all, mired in deflation, with government debt rising every year and no sign of capacity to repay improving. So, one day or another, something has to give somewhere.

Toshihiko Fukui has been named by Junichiro Koizumi, Japan's prime minister, as his choice to be the new governor of the Bank of Japan, prompting critics to question Mr Koizumi's qualifications as a reformer and Japan's commitment to tackle deflation. Mr Fukui, former deputy governor of the BoJ before resigning amid scandal in 1998 and currently head of the Fujitsu Research Institute, a think-tank, is a career central banker expected to continue the policies of the incumbent governor, Masaru Hayami.

Mr Fukui's nomination indicates strongly that future moves by the BoJ to tackle inflation will not make use of so-called unorthodox measures such as an inflation target or the purchase of overseas assets, but will continue the current policy of injecting liquidity into the banking system.Peter Morgan, economist at HSBC Securities, said: "Mr. Fukui's views on monetary policy are conservative, and in line with the mainstream of the Bank of Japan. This means that there will be no break in the BoJ's monetary stance, and that the adoption of unconventional policy measures is extremely unlikely. Adoption of an inflation target is also unlikely."
Source: Financial Times

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