Asia: Will Bank of Japan change under Fukui?

Global Finance, Apr 2003 by Platt, Gordan

The appointment of Toshihiko Fukui, a conservative, as the new governor of the Bank of Japan was greeted with widespread disappointment in the foreign exchange market. Most analysts said they expected more of the same from the 40-year veteran of the BOJ.

"The appointment of Fukui has drawn market criticism that monetary policy will remain conservative and ineffective," says Grace Chen, analyst at Royal Bank of Scotland. Significantly, however, the government also nominated former ministry of finance vice minister Toshiro Muto and former Tokyo University professor Kazumasa Iwata as BOJ deputy governors Chen adds.

Fukui, president of Fujitsu Research Institute, has a reputation for being an independent thinker, she notes, and the new deputy governors will likely tip the central bank's policy board in a more dovish bent.

Inflation may well be placed on the back burner for now, as fiscal prudence will remain a key guiding factor in the approach to monetary policy under the new BOJ team, she says. Still, wider purchases of unorthodox assets cannot be ruled out, Chen adds.

All indications are that the BOJ is continuing to intervene in the market, says Larry Kantor, head of global foreign exchange research at JPMorgan Chase in New York.

What is less clear, he says, is whether Japanese officials intend merely to defend current levels of the yen, moderate any decline, or try to drive it higher. With the Japanese stock market at a 20-year low, the yen is likely too strong for policymakers to accept, Kantor says.

-Gordon Platt