BOJ has done too little, says potential contender for governor

The Bank of Japan has failed to end more than a decade of deflation by being too cautious, said Takatoshi Ito, a former finance ministry official who is a contender to become the central bank’s next governor.

The bank’s board under Governor Masaaki Shirakawa, who steps down in April, has done “too little, too late,” Ito, dean of Tokyo University’s Graduate School of Public Policy, said in an interview in Tokyo. The BOJ should have started its asset-purchase program earlier and has been “extremely passive in building inflation expectations,” he said.

Ito’s criticism of the central bank echoes that of opposition leader Shinzo Abe, whose Liberal Democratic Party is leading in polls to win a national election on December 16. Abe’s call for unlimited easing and an inflation target of 2 percent sent the yen to a seven-month low last month.

“Inflation targeting will become a very important element” to stamp out deflation, Ito, 62, said. “It’s worth trying in order to pull Japan out of a deflationary spiral that has lasted 15 years.”

The yen has weakened around 1.4 per cent against the dollar since Abe’s remarks in November, the most among 16 major currencies tracked by Bloomberg, a reaction that Ito said was positive. In early Tokyo trading on Friday, the currency was at 82.47.

Ito was nominated for BOJ deputy governor in 2008 by the LDP when the party was last in power. He was rejected by the opposition-controlled upper house of parliament along with two candidates for governor who, like Ito, had been finance ministry officials. Ito was deputy vice-finance minister from 1999 to 2001.

The BOJ’s fund to buy government assets and other securities, its main policy tool amid near-zero interest rates, should have started in 2008 instead of 2010 to help deal with the global financial crisis, Ito said. The BOJ increased the size of the fund by 11 trillion yen (US$133 billion) to 66 trillion yen on October 30, its second monetary easing in two months.