Iwata Says BOJ Can Beat Deflation by Buying Longer-Term Bonds

By Toru Fujioka

Bank of Japan (8301) deputy governor nominee Kikuo Iwata said the central bank can end deflation solely through buying government debt and doesn’t need to purchase riskier assets to meet its inflation target.

“If we buy long-term bonds, we can achieve 2 percent inflation within two years,” Iwata, 70, an economics professor at Gakushuin University in Tokyo, said at an upper house parliamentary confirmation hearing today. “We need decisive easing.”

Investors are assessing the likely strength of monetary stimulus from the BOJ after Governor Masaaki Shirakawa and his deputies step down on March 19. Iwata’s comments come after Prime Minister Shinzo Abe’s nominee for governor, Haruhiko Kuroda, said yesterday that the bank would consider buying derivatives and signaled a readiness for a quick expansion in monetary stimulus.

The BOJ will probably ease at its next policy meeting on April 3-4, Masaaki Kanno, chief Japaneconomist at JPMorgan Chase & Co. in Tokyo and a former BOJ official, said in research note yesterday. Kanno expects the bank will increase the maturity of bonds it buys to 30 years from current purchases up to three years.

Kuroda’s stated desire for quick action makes an earlier- than-scheduled meeting possible, although he’s more likely to wait until April “unless the market’s volatility increases unexpectedly,” Kanno said. The economist sees Ryuzo Miyao, Sayuri Shirai and possibly Yoshihisa Morimoto supporting Kuroda and his deputies in enacting aggressive monetary easing, ensuring a majority on the nine-person board.

Yen’s Fall

The yen dropped to a 3 1/2-year low today as Iwata’s comments fanned speculation the central bank will boost cash infusions in coming months. The currency was 0.3 percent lower at 96.58 per dollar at 11:07 a.m. in Tokyo, while the Nikkei 225 Stock Average rose 0.4 percent.

Minutes released today from the BOJ’s February policy meeting highlighted the communications challenges that the central bank may face in its push to end deflation, as it predicts prices will fall in coming months even as monetary easing is stepped up.

The BOJ should explain to the public that expected price declines will be temporary, some members said. It is “extremely important” to explain how a 2 percent inflation target will be achieved, they said, according to the minutes.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

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