Abe Sticks With Reflationist Balance on Bank of Japan Board
Abe Taps Seiji Adachi to Replace BOJ Board Member Harada
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here.
Prime Minister Shinzo Abe kept the number of stimulus advocates on the Bank of Japan policy board unchanged on Tuesday, sending a strong signal of continuity for central bank policy.
Abe’s administration chose Seiji Adachi, head of economic research at Marusan Securities, to replace Yutaka Harada on the policy board, according to a statement distributed by a parliamentary committee Tuesday. The Diet is likely to approve the nomination before Harada ends his five-year term on March 25 to avoid a vacancy on the board.
Adachi co-wrote a book in 2013 alongside Harada and others just before the BOJ launched its massive easing program that sets him at the heart of the reflationist movement in Japan.
The nomination of Adachi, 54, is for one of the nine seats on a board that is expected to keep policy on hold for a while. With limited policy tools and relative stability in foreign exchange rates, a majority of economists expect the bank’s next eventual policy step to be tightening.
“Adachi’s a person right at the center of the reflationists,” said Yuji Shimanaka, chief economist at MUFJ Morgan Stanley. “The Abe administration has shown a clear position in support of aggressive easing.“
Abe’s selection has been under close scrutiny by BOJ watchers looking for clues on his current stance on monetary policy amid signs that achieving the inflation target may not be at the top of his priorities.
Marusan Securities said Adachi wasn’t available to comment.
Reflation Tome
The 2013 book focuses on spurring prices to restore growth in the Japanese economy and was published shortly before Governor Haruhiko Kuroda unveiled his easing program to lift the economy out of deflation and achieve 2% price growth.
The authors included former BOJ deputy governor Kikuo Iwata and Koichi Hamada, a member of Abe’s original brain-trust of price-growth advocates, who advised on the nomination of Kuroda and other BOJ board members. Current deputy governor Masazumi Wakatabe also contributed to the book.
In more recent commentary in columns Adachi has written for Money Gendai, an online media site run by major Japanese publisher Kondansha Ltd., he has argued that the BOJ’s monetary policy from 2013 onward has been effective in getting out of deflation, and it’s important that this positive direction isn’t stopped.
He’s also argued that there’s a need for fiscal spending that clearly commits to an inflation target, if we are to learn from historical lessons such as the second world war.
Adachi said in an October column for Money Gendai that it would be “outrageous” to argue that both negative rates and quantitative easing policies should be ceased due to a lack of effectiveness. Still, he said increasing purchasing of ETFs was a better option for additional easing than lowering negative rates further.
Limited Impact
This year the BOJ faces one of its biggest leadership shakeups since Kuroda took the helm in 2013. Two out of nine board members and several senior officials will probably be replaced over the coming months in moves that will help shape the thinking of the BOJ amid growing speculation its next eventual move will be to normalize policy.
Some 76% of economists had expected Harada, a consistent dissenter to BOJ board decisions, to be replaced by another like-minded reflationist, according to a Bloomberg survey. Yukitoshi Funo, a former Toyota executive, will also step down at the end of June, and would typically be replaced by another representative of corporate Japan.
Despite Adachi’s pro-stimulus credentials, economists don’t see his appointment changing the direction of BOJ policy back toward a more QE-focused easing approach.
“It’s become clear what was possible during the Kuroda regime and what was not. Expectations for what reflationists can do have been shrinking,” said Nobuyasu Atago, chief economist at Okasan Securities and former head of the BOJ’s price statistics division.
Like Goushi Kataoka, Adachi may dissent from the current policy arguing that it’s not accommodating enough, but that won’t change the direction of policy as he will still be part of a minority, Atago added.
One aspect of Adachi’s thinking that may generate wider attention are his views on the impact of QE on currencies.
“He places great emphasis on the impact of quantitative easing via the exchange rate,” Shimanaka said, adding that his nomination reinforces the likelihood the BOJ would take further action if the yen strengthened sharply.
That view could gain interest in the U.S. if he speaks about it publicly as a BOJ board member.
President Donald Trump has railed against countries he says are making their currencies cheaper to gain a competitive advantage, with Japan included in past comments.
What Bloomberg’s Economist Says
“We suspect Adachi, if he joins the board, will hew to a dovish reflationist stance -- somewhere between Harada and Deputy Governor Masazumi Wakatabe. The market reaction to the news was muted -- underlining our assessment that Abe isn’t making waves with this choice.”
--Yuki Masujima, economist
Click here to read more
--With assistance from Yoshiaki Nohara and Yuko Takeo.
To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net;Sumio Ito in Tokyo at sito58@bloomberg.net
To contact the editors responsible for this story: Paul Jackson at pjackson53@bloomberg.net, Alexandra Veroude
©2020 Bloomberg L.P.