BOJ deputy governors hearings in lower house - Nomura

Analysts at Nomura noted that the two BOJ deputy governor nominees, Mr. Wakatabe and Mr. Amamiya, had their confirmation hearings today in the lower house.

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The next hearing for the deputy governor nominees will be on Wednesday in the upper house, while Governor Kuroda’s hearing in the upper house is scheduled for tomorrow. 

Mr. Wakatabe maintained his strong dovish stance, while he did not provide any detailed policy options. He said there are no limits to monetary policy (Bloomberg). Mr. Wakatabe also said he does not think there is an issue with policy sustainability. On the negative side effects, he said the positive effects of current policy are much larger than the side effects, while the side effects of negative rates have not manifested much. At the same time, Mr. Wakatabe said he will suggest more stimulus “if needed,” not committing to any new easing at coming meetings. He also said he would first suggest improving current policy tools if needed. These comments suggest his stance will be more realistic and will follow the current policy framework as a deputy governor, even though in December he said easing was necessary before the sales tax hike.

In terms of an exit, Mr. Wakatabe’s stance was as expected very cautious. He said he cannot see an exit starting without reaching the 2% inflation target (Bloomberg). The definition of an exit here is unclear, but if he believes there should be no policy changes before achieving 2% inflation, the commitment is stronger than in the current BOJ framework, which allows policy tweaks He may slow the process of BOJ policy normalisation, while we should monitor whether the BOJ consensus could be affected by Mr. Wakatabe. 

Mr. Amamiya’s view was more balanced, but he still said the good effects of monetary easing are larger, though there are negatives from policy (Bloomberg). Mr. Amamiya admitted that a negative rate would be a heavy burden on banks and profit conditions for banks are getting more severe. However, he said Japan’s financial system has maintained stability and he does not believe financial intermediation has been hurt. Governor Kuroda said monetary policy is not affecting banks’ financial intermediary role last Friday (Bloomberg), and Mr. Amamiya’s stance is not so different from Governor Kuroda’s current assessment of the negative side effects. Mr. Amamiya said that he will continue watching effects and side effects, but his comments do not suggest he considers policy adjustment is necessary in the near future."