(Reuters) - Japan’s next prime minister Shinzo Abe wants someone more in tune with his expansionary thinking to replace central bank governor Masaaki Shirakawa when his term expires in April.
Abe’s opposition Liberal Democratic Party (LDP), which surged back to power in a general election on Sunday, will draw up a list of nominees, with help from the Bank of Japan and the finance ministry, to fill two deputy governor posts opening up in March and the governor post a month later.
Abe, after the election, said he wanted the new BOJ governor to be someone who is eager to set a 2 percent inflation target.
Closed-door consultations to draft shortlists will begin in January, and the final nominations will need approval by both houses of parliament.
Despite the LDP’s dominance in the lower house, Abe needs opposition parties’ cooperation to pass the nominations in the upper house, where his party lacks a majority.
Back in 2008, this process delayed central bank appointments. The top post was left vacant for several months and Shirakawa was chosen only after the opposition-controlled upper house turned down several government nominees. Below are potential BOJ governor and deputy governor candidates, and their views on monetary policy:
The BOJ and the finance ministry used to take turns putting their man in the post of governor, but in the past 15 years, the choices have come from within the central bank. This time the finance ministry is lobbying fiercely to win back the post and the 69-year-old Muto, a former ministry bureaucrat who served as deputy BOJ governor until 2008, is its first choice.
Muto has close contacts with LDP lawmakers that should hold him in good stead now with the party in power. Now head of a private think tank, Daiwa Institute of Research, Muto is known for his negotiating skills with politicians that he cultivated during his career at the ministry.
Muto feels the BOJ can buy more long-term government bonds and expand asset purchases more aggressively. But his views on what the BOJ ought to do is milder than some other candidates, warning that printing money to finance public debt could backfire and trigger a sharp bond yield spike.
A former government economist who served as deputy BOJ governor until 2008, the 66-year-old Iwata has many fans in political circles and his consistent calls for bolder monetary stimulus to beat deflation have made him a strong candidate for the governorship.
As a member of a government panel to craft Japan’s growth strategy, he called on the BOJ to invest in a 50 trillion yen ($599 billion) fund to buy foreign bonds to keep sharp yen rises in check. The idea made its way into the LDP’s campaign pledge, which called for creating a pool of funds to buy foreign assets.
Iwata was regarded as a dove on monetary policy when he was deputy BOJ governor, dissenting over a hike in interest rates in 2007. He has told Reuters that the BOJ should aim for 2 percent inflation and buy longer-dated government bonds and foreign bonds, a view close to that of Abe.
Academics may land the top post if Abe prefers a fresh face over ex-bureaucrats. That puts Heizo Takenaka, who served as economics minister under former LDP Prime Minister Junichiro Koizumo a decade ago, in the spotlight.
He wants the government to set a 1 percent to 3 percent inflation target for the BOJ. He also wants the central bank to increase bond purchases. While those recommendations resonate with Abe’s policy view, Takenaka’s outspokeness may have made him too many enemies in the bureaucracy.
Takatoshi Ito, an academic who served with the finance ministry during Asia’s financial crisis in the late 1990s, is also a candidate. Ito is well known among academics at home and abroad for his work on monetary policy and has long been an advocate of an inflation target. Another name floated is Haruhiko Kuroda, the president of the Asian Development Bank and also an ex-finance ministry bureaucrat. Both have criticized the BOJ for not doing enough to beat deflation, and advocate more aggressive asset purchases.
A vocal critic of BOJ policy, Abe is unlikely to pick a former or career central banker as governor. But he may choose to fill a deputy governor post with one to assist the governor in administrative affairs or liaison with other central banks.
If the governor needs help in international affairs, Hiroshi Nakaso, who got a rare second term as BOJ Executive Director and has many central bank friends overseas, will be the top choice. Other candidates include Eiji Hirano, a former BOJ executive who has also attended numerous G7 meetings.
Masayoshi Amamiya, a veteran central banker who masterminded quantitative easing, is another possibility for one of the deputy roles if the governor comes from outside the BOJ, because of his management skills and ability to come up with new tools for monetary easing.
Reporting by Leika Kihara; Editing by Simon Cameron-Moore