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BoJ meeting marks end of era before leadership change

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(Globalpost/GlobalPost)

The Bank of Japan Thursday wrapped up its last policy meeting under governor Masaaki Shirakawa, making way for new management who back a major policy shift driven by aggressive easing measures.

Shirakawa's departure on March 19, about three weeks before the end of his term, has been widely viewed as marking a new era for the BoJ with the government demanding action to stoke the world's third-largest economy.

As the sun set on Shirakawa's tenure, one marred by public rows with the nation's premier over policy, the central bank on Thursday announced no fresh policy measures but offered an upbeat assessment of the economy.

The BoJ, which left rates unchanged at zero to 0.1 percent, said Japan's recession-hit economy has "stopped weakening" and is "expected to level off more or less for the time being".

Shirakawa's likely replacement, Haruhiko Kuroda, a finance veteran and current Asian Development Bank head who is a strong supporter of monetary easing, is likely to be confirmed by parliament in the coming weeks.

The 68-year-old Kuroda has long criticised the BoJ for doing too little to lift the economy, and is seen as likely to lead a fresh drive for more spending and aggressive easing to beat deflation, putting him squarely in Prime Minister Shinzo Abe's policy camp.

On Monday, Tokyo's nominee for the BoJ's top job said he would do "everything possible" to tackle the falling prices that have weighed on Japan's growth since the 1990s, crimping spending and business investment.

Some analysts questioned how much the new BoJ would differ from previous incarnations, with all eyes on Kuroda's first policy meeting next month.

"Under (Kuroda's) tenure the market is expecting a much more dovish BoJ than was the case under Shirakawa," said Chris Tedder, research analyst at Forex.com in Sydney.

"This puts a lot of focus on the bank's next meeting, as the market will be using it to gauge what to expect from Kuroda going forward."

Abe cruised to a landslide victory in December elections on pledges to reverse Japan's fortunes with a mix of big spending and aggressive monetary easing, a prescription that put him on a collision course with Shirakawa.

The conservative premier had openly said he would like to turf out the BoJ chief, and threatened to change a law mandating its independence if the bank did not fall into line, stirring protest from central bankers abroad.

In January, the under-pressure BoJ bowed to government demands, announcing an unlimited easing programme and two-percent inflation target aimed at beating deflation.

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

Japan's recession-hit economy shrank for the third consecutive quarter in the October-December period while Tokyo logged a record trade deficit in 2012, underlining the job head for Abe and his expected team at the central bank.

However, the BoJ on Thursday suggested that a slump in exports, hit by weak demand in Europe and a consumer boycott of Japanese goods in China stemming from a territorial spat, was slowing.

"Exports appeared to stop decreasing" as hard-hit overseas economies have been picking up, while consumer demand at home remains "resilient", it said.

But it also repeated earlier warnings that Japan faced a "high degree of uncertainty" given an unsteady US recovery, weakness in Europe and Tokyo's diplomatic spat with Beijing.

Shirakawa, who spent more than three decades at the BoJ before leaving in 2006 to become a professor, took up the governor job in April 2008, just months before the collapse of Wall Street titan Lehman Brothers which heralded the start of the global financial crisis.

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http://www.globalpost.com/dispatch/news/afp/130307/boj-meeting-marks-end-era-leadership-change