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BoJ nominee vows to conquer deflation

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(Globalpost/GlobalPost)

The government's pick to lead the Bank of Japan vowed Monday to do "everything possible" to reverse years of growth-sapping deflation, and blasted previous BoJ management for failing to fix the problem.

Haruhiko Kuroda, an experienced finance veteran who has announced his resignation as head of the Asian Development Bank, is widely expected to be confirmed by parliament as Japan's top central banker in the coming weeks.

The 68-year-old has long criticised the central bank for not doing enough to lift the world's third-largest economy and is likely to lead a fresh drive for more spending and aggressive monetary easing.

"I want to make it clear that we will do everything possible to get rid of deflation," Kuroda told a parliamentary committee, according to Jiji Press.

Japan has been beset by deflation since the 1990s. It continues to hurt the economy as falling prices lead consumers to put off purchases in the hopes of paying less later and cuts into corporate profits, leading firms to slash jobs and put off growth-generating capital investment.

The country's Prime Minister Shinzo Abe, whose Liberal Democratic Party swept December elections, has vowed to stoke the economy with big spending and aggressive monetary easing.

That put him on a collision course with outgoing BoJ head Masaaki Shirakawa, who is stepping down on March 19, three weeks before the end of his term, after he and Japan's new leader sparred on policy matters.

Abe had previously warned Shirakawa that he might change a law guaranteeing the bank's independence if it did not follow his policies, stirring protest from central bankers abroad.

Under increasing pressure from Abe's administration, the central bank in January announced an unlimited easing programme to start from next year and the adoption of a two-percent inflation target aimed at reversing deflation.

The asset-purchase policy is similar to the US Federal Reserve's unlimited monthly bond-buying programme, known as quantitative easing.

On Monday, Kuroda applauded the new inflation target, seen as more explicit than the bank's previous "goal" to raise prices.

But he said the BoJ's 101 trillion yen ($1.08 trillion) asset-buying programme did not go far enough.

"The size and items subject to the Bank of Japan's current asset purchases are not enough," Kuroda was quoted by Jiji as saying, although he hailed the inflation target as "utterly unprecedented".

"If appointed, I think that achieving the (inflation) objective at the earliest time is my most important duty," he added.

Markets have cheered Abe's efforts, with the benchmark Nikkei 225 index soaring and the yen weakening in recent months, good news for the country's hard-hit exporters.

In Monday forex trade, the dollar and euro strengthened slightly against the Japanese unit after Kuroda's comments before reversing course to 93.45 yen and 121.57 yen, from 93.59 yen and 121.92 yen in New York trade on Friday.

Abe's prescription for the recession-hit economy has 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.

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http://www.globalpost.com/dispatch/news/afp/130303/boj-nominee-vows-conquer-deflation-0