The BOJ meets on Wednesday and Thursday this week. After choosing not to expand this year's asset purchase plan when it met in January, it is unlikely to reverse itself now. In addition, recent data suggests that the Japanese economy has begun a recovery, the strength of which is yet to be determined. Japan reports Q4 GDP during the BOJ meeting and it is likely to be slightly positive after the 0.9% contraction in Q3. The BOJ may upgrade its assessment of the economy.
With the IMF, US, and now the G7 seemingly endorsing Abe's drive to reflate the world's third largest economy, the focus will shift more earnestly to the next BOJ governor. The governor and two deputies will be named in the coming weeks.
The head of the Asian Development Bank, Kuroda, is regarded by many as the frontrunner to replace Shirakawa at the helm. Kuroda himself seems to be campaigning for the post. He sounded the right notes to show he is simpatico with Prime Minister Abe. Earlier today, Kuroda opined that there was more that monetary policy can do to quickly arrest deflation.
This clearly indicates that if selected, Kuroda would ease monetary policy, as the newly elected government desires. Among measures Kuroda seemed to favor is buying a wider range of assets. In the interview with the WSJ, he suggested that the 2% inflation target, which since 2000 has been seen for only four months around the middle of 2008, can be achieved in two years.
Kuroda's remarks show the right state of mind for Abe; he spent much of his career in Japan's Finance Ministry and was a special advisor to former Prime Minister Koizumi. He also represented Japan at various international financial gatherings. His experience, gravitas, and international profile seem to make him an ideal candidate. Economic Minister Amari seemed to endorse him.
The main drawback of Kuroda getting the nod is not so much about Japanese domestic politics but international politics. His second five year term as the president of the Asian Development Bank began in Nov 2011. If he is pulled away, Japan would likely lose the position. China and/or South Korea are thought to be in the wings with their own candidates to head the ADB.
Kuroda's main rivals for the top BOJ job are two former deputies at the BOJ--Iwata and Muto, both of whom seem to be pushing for more monetary action. One advantage of their candidacy is that it might appease the opposition, whose approval (in the upper house) is necessary. Neither, though, have Kuroda's international standing.
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