By Leika Kihara
TOKYO (Reuters) -The fading shadow of reflationists in the Bank of Japan, and the latest addition to the board of an academic favouring an end to ultra-low interest rates, will likely bring the central bank’s thinking closer to global peers taking a more conventional approach on monetary policy.
The reshuffle would come at a critical time for the central bank, which raised interest rates to 0.5% in a rate-hike cycle analysts say may take short-term borrowing costs to around 1%.
The following outlines the balance between the doves in the board who would prefer to take rate hikes slowly, the hawks who favour acting steadily toward policy normalisation and the neutrals who lie somewhere in between.
THE HAWKS
Board member Naoki Tamura, a former commercial bank executive, has been the most vocal advocate of monetary tightening. In August 2023, he signaled the chance of an end to negative rates – a move the BOJ indeed took in March 2024.
In his latest speech in September, he said the BOJ must raise rates to at least 1% as soon as the second half of fiscal 2025 – becoming the first and only board member who publicly specified a level the central bank must eventually target in pushing up borrowing costs.
Fellow board member Hajime Takata, a former bond strategist, also called on the need to raise rates in several stages if economic and price developments move in line with its forecast.
Junko Koeda, an academic who had warned of the cost of prolonged monetary easing, has been nominated by the government to join the board, replacing Seiji Adachi. In a paper released in 2018, she argued that raising rates before inflation hits 2% won’t necessarily cool growth.
Among the BOJ’s leadership, deputy governor Ryozo Himino is considered the most hawkish given his career as former head of Japan’s bank regulator, which had long criticised the BOJ’s ultra-loose policy for hurting lenders’ margin. He used his public appearance in January to essentially pre-announce the bank’s decision to raise rates that month.
THE DOVES
Toyoaki Nakamura, a former executive of electronics giant Hitachi, worries about the damage a stimulus exit could inflict on small and mid-sized firms. While he agrees on the need to push up ultra-low rates, he is cautious of doing so too soon.
Former academic Asahi Noguchi, known as an advocate of aggressive monetary easing, and former economist Seiji Adachi have also been considered as among dovish members of the board. Both have called for slow, moderate rate hikes, if any.
But the doves’ presence is diminishing. With inflation above the BOJ’s target for nearly three years, Adachi and Noguchi have shed their dovish streak and voted for raising rates in January.
Adachi will see his term end in March and Nakamura in June.
NEUTRALS
Governor Kazuo Ueda and his career central bank-turned deputy, Shinichi Uchida, are seen as favouring gradual but steady increases in Japan’s borrowing costs that remain deeply negative on an inflation-adjusted basis.
Both have stressed the BOJ’s resolve to continue raising interest rates if prospects of sustained wage gains heighten the chance of Japan seeing inflation move stably around its 2% goal.
Junko Nakagawa, who was formerly chairperson of Japan’s Nomura Asset Management, is also considered a neutral. While warning of overseas uncertainties, she said there were upside risks to Japan’s price outlook due to a tight job market.
(Reporting by Leika Kihara; Editing by Sam Holmes and Shri Navaratnam.)
