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Tuesday, March 18, 2003

New BoJ Governor: Actions Will Speak Louder Than Words

The traditional sport of governor watching will take a new turn this week with Toshihiko Fukui taking over as governor of the Bank of Japan on Thursday. Commentators are already hanging on his every word looking, almost hope against hope, for some sign of change. My own view is we will have to wait: to wait and see what lies behind the words, and to wait and see how events yet to unfold may affect BoJ policy:

Toshihiko Fukui, who takes over as governor of the Bank of Japan on Thursday, signalled that he is prepared to adopt a more aggressive monetary policy, though he said the central bank could not tackle deflation alone.

In confident testimony before parliament on Tuesday Mr Fukui said the BoJ would consider broadening the range of assets it buys, comments taken by analysts to refer to the possible purchase of property-backed securities or exchange-traded funds, a proxy for the stock market.Mr Fukui also said he would look favourably on requests from politicians for the BoJ to raise the Y2,000bn limit on the amount of shares it can buy from commercial banks. The BoJ broke a taboo last September when it said it would purchase shares from banks, but Masaru Hayami, who steps down as governor on Wednesday has been openly nervous about the effect this could have on his institution's credibility.

On the controversial topic of whether the BoJ should set an inflation target, Mr Fukui was less dismissive of the idea than Mr Hayami, though he said it would be foolhardy to set such a target without making clear how it was to be achieved. "I think inflation targeting can be an important policy tool for a central bank," he said. "I still need to debate with the BoJ policy board members whether the conditions are in place for such a policy."
Source: Financial Times

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