By Leika Kihara
TOKYO (Reuters) – The fading shadow of reflationists in the Bank of Japan, and the latest addition to the board of an academic favouring an end to ultra-low interest rates, will likely bring the central bank’s thinking closer to global peers taking a more conventional approach on monetary policy.
Newcomer Junko Koeda, a 49-year-old academic known as a fiscal and monetary hawk, is likely to reinforce the shift towards higher interest rates and bring fresh thinking into a central bank long focused on reflating growth via huge stimulus.
As the BOJ eyes further rate hikes, academic-turned Governor Kazuo Ueda will see a like-minded ally in Koeda, an economics professor with a Ph.D. from UCLA and a knack for quantitative analysis on the effects of monetary policy.
She would replace one of the «reflationists,» or advocates of aggressive monetary easing, who dominated the nine-member board during Governor Haruhiko Kuroda’s decade-long experiment that began in 2013 to fire up inflation to its 2% target.
The departure of Seiji Adachi in March will leave just one reflationist, Asahi Noguchi, in the board. With inflation above the BOJ’s target for nearly three years, both have already shed their dovish streak and voted for raising rates in January.
The disappearing reflationists, and the scheduled departure of another dovish member Toyoaki Nakamura in June, will tip the board increasingly in favour of steady rate hikes, analysts say.
It would also symbolise how the BOJ is shifting further away from unconventional policy, and reverting to the conventional central banking style of moving short-term rates in accordance to developments in the economy and inflation.
«While Koeda may be balanced on monetary policy, the departure of reflationist-minded members will steer the BOJ further toward policy normalisation,» said former BOJ board member Takahide Kiuchi.
«The appointment of someone like Koeda meshes with Ueda’s goal of reverting to the conventional style of using short-term rates as the sole tool in guiding monetary policy,» said Kiuchi, currently an economist at Nomura Research Institute.
BALANCE SHEET WOES
The BOJ ended negative interest rates and other remnants of Kuroda’s radical stimulus last year. While it has moved up short-term rates to 0.5%, it is still saddled with huge asset holdings and is tapering bond purchases at a snail’s pace.
With her expertise on monetary policy analysis, Koeda may help deepen the board’s debate on how far the BOJ can eventually raise short-term rates, and at what pace it can shrink its huge balance sheet, analysts say.
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