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Japan taps ADB head for top central bank post

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(Globalpost/GlobalPost)

Prime Minister Shinzo Abe Thursday nominated an experienced finance veteran to lead the Bank of Japan, selecting a kindred spirit who backs his hard-driving agenda to reverse decades of economic gloom.

Abe's pick of Haruhiko Kuroda, the head of the Asian Development Bank who has blasted the central bank for not doing enough to lift the economy, will likely see a fresh drive for more spending and aggressive monetary easing.

Japan's business sector has been upbeat since reports of Kuroda's possible nomination appeared last week, with shares climbing and the yen tumbling. In afternoon trade the yen weakened, with the dollar at 92.37 yen, compared with 92.16 yen in New York late Wednesday.

Kikuo Iwata, an economics professor at Tokyo's Gakushuin University, and Hiroshi Nakaso, the BoJ's executive director were also put forward to become Kuroda's deputies.

The three are expected to be approved by parliament in the coming weeks.

A statement on the Philippines-based ADB website said Kuroda would step down on March 18, quoting the University of Oxford graduate as saying he was "deeply honoured" to have led the anti-poverty lender.

Earlier Thursday, the government's top spokesman Yoshihide Suga said the nominees would "play the role of helmsmen for the 'bold monetary policy' that the prime minister is pursuing".

His comments suggest the three will fall in line with Tokyo's plans, after Abe sparred over policy with outgoing BoJ chief Masaaki Shirakawa who is stepping down on March 19, three weeks before the end of his term.

Japan's premier, who swept to power in December elections, warned Shirakawa that he could change a law guaranteeing the bank's independence if it did not follow his policies, stirring protest from central bankers abroad.

Abe's prescription for the deflation-plagued economy has also sparked criticism that Tokyo is intentionally pushing down the yen's value and risking a global currency war as rival nations race to gain a trade advantage.

But Kuroda has defended the yen's fall as a "natural correction" after hitting a record high of around 75 to the dollar in late 2011, while deriding Japan's chronic deflation as "abnormal".

Years of falling prices in Japan have prompted consumers to hoard their money in the hope of paying less later, while deflation also hurts firms' capital spending and investment.

"There has never been a developed nation that suffered deflation for 15 years -- it is abnormal," Kuroda told Japanese media earlier this month.

"The duty to stabilise prices rests with central banks. The BoJ could not end deflation."

Kuroda spent decades as a Japanese finance ministry bureaucrat and was responsible for international affairs and foreign exchange policy between 1999 and 2003. He assumed the top job at the ADB in 2005.

Underscoring the work ahead for Abe and the central bank, the economy shrank for a third straight quarter between October and December, leaving it mired in recession. On Thursday data showed factories boosted output last month at a slower rate than expected as exports remain weak, particularly to Europe.

Despite the positive market reaction, some analysts have questioned whether the new-look BoJ will be much different than previous incarnations.

"The market is expecting a lot from the new BoJ, perhaps too much," said Chris Tedder, analyst at Forex.com in Sydney, adding there would be "a lot of emphasis on Kuroda's first policy meeting as BoJ governor in early April".

Last month, the bank bowed to Abe's demands, announcing an unlimited easing programme and adopting a two-percent inflation target aimed at reversing deflation.

That may limit Kuroda's arsenal, especially since a government proposal to buy foreign bonds -- requiring the sale of huge amounts of yen -- could further stoke claims Tokyo is driving down the unit, said London-based Capital Economics.

"Officials have cooled on the idea of a fund to buy foreign bonds, which would be a transparent attempt to weaken the yen," it said.

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http://www.globalpost.com/dispatch/news/afp/130228/japan-taps-adb-head-top-central-bank-post