Reflationist Wakatabe seen as key in BOJ monetary policy

February 22, 2018

Tokyo- Market attention is focusing on whether Waseda University Prof. Masazumi Wakatabe, known as a reflationist and candidate for Bank of Japan deputy governor, will continue to call on the central bank to take additional monetary easing steps after assuming the key BOJ post.

Early next month, both chambers of the Diet, Japan's parliament, are expected to invite Wakatabe, who seeks to beat deflation through massive monetary stimulus, to ask about his views on the economic and price conditions, and the BOJ's monetary policy management.

The House of Representatives, the lower chamber, and the House of Councillors, the upper chamber, will also conduct similar hearings with BOJ Executive Director Masayoshi Amamiya, the other candidate for deputy governor, and BOJ Governor Haruhiko Kuroda, who has been nominated for reappointment as the top Japanese central banker.

The government and the Liberal Democratic Party-led ruling bloc hope to obtain Diet approval for the appointments of Wakatabe and Amamiya by March 19, when the five-year terms of the current two BOJ deputy governors--Kikuo Iwata and Hiroshi Nakaso--are set to expire. Kuroda's current term is set to end on April 8.

The BOJ's governor and two deputy governors are among the nine members of its Policy Board, which makes the central bank's monetary policy decisions.

The government hopes that Wakatabe, as BOJ deputy governor, will work to prevent the central bank from making haste in exiting its current ultraeasy policy.

In an interview with Jiji Press last December, Wakatabe said that additional monetary easing measures will be necessary if the government raises the consumption tax rate to 10 pct from the current 8 pct in October 2019 as planned. Specifically, he said the BOJ "should consider increasing purchases of Japanese government bonds and expanding quantitative easing."

On the BOJ's possible exit from its current policy, Wakatabe said that it would be problematic if financial markets consider the bank's monetary policy stance to be tilting toward tightening.

An official of a foreign securities firm predicted, however, that it will be difficult for Wakatabe to fully maintain his reflationist stance after becoming BOJ deputy governor. This is because the Japanese economy continues recovering and the BOJ law stipulates that supporting the governor is part of the roles of the deputy governors.

It is unclear if Wakatabe has enough ability in monetary policy management, a former BOJ official said. He specializes in the history of economics.

Wakatabe's remarks on his responsibility as a BOJ policymaker are also likely to attract attention during the coming parliamentary hearings.

In a Diet hearing in early March 2013, Iwata, as a candidate for BOJ deputy governor, said that he would resign from the post if the BOJ failed to achieve its 2 pct inflation target within two years. Iwata, who took office on March 20 that year, came under fire because he remained in the post after the central bank was unable to attain the goal in the two-year time frame. Jiji Press