TOKYO -- Japan's prime minister Shinzo Abe vowed to push ahead with more aggressive monetary easing as he Thursday nominated Haruhiko Kuroda to head the country's central bank.
The current Bank of Japan governor, Masaaki Shirakawa, will step down on March 19, three weeks before his term is due to end. The nomination of 68-year-old Kuroda, an Oxford-educated former vice minister of finance, was widely expected. He is currently president of the Asian Development Bank. A parliamentary vote on Kuroda's appointment is due next month.
Abe is counting on Kuroda's support to help Japan escape from a long, debilitating bout of deflation that he says is hindering consumer spending and corporate investment.
Bolder monetary easing is one of Abe's "three arrows" or main strategies, for helping salvage the ailing economy. The central bank under Shirakawa was reluctant to embrace Abe's monetary push and it emphasized that Japan's economy has deep seated problems that the central bank alone can't solve.
After months of lobbying by Abe that started even before his Liberal Democrat party took power following a landslide win in a Dec. 16 election, the Bank of Japan joined with the government in setting a 2 percent inflation target. So far, massive asset purchases by the central bank and years of near-zero interest rates have done little to boost investment or hiring by corporations put off by slack domestic demand.
In a speech to the parliament Thursday, Finance Minister Taro Aso pledged more drastic measures to help revive growth.
"Deflation is a deep-rooted problem that has undermined the Japanese economy" as it has "hampered investment toward the future," said Aso, noting that Japan is not the only country grappling with weak demand and an aging population.
"As a pioneer, Japan should achieve the end of deflationary recession and present a solution to the world," Aso said.
Kuroda has criticized central bank policies in the past. His perceived alignment with Abe's views on the economy has added to worries that the Bank of Japan's independence could be undermined. Central bank autonomy, which aims to ensure monetary policy decisions aren't captive to the short-term considerations of political leaders, is enshrined in law in many countries. However, the deep economic malaise that followed the 2008 financial crisis has resulted in many central banks, the U.S. Federal Reserve in particular, accommodating calls for unprecedented monetary easing.
Along with Kuroda, the government proposed that Kikuo Iwata, a professor at Tokyo's Gakushuin University, and Hiroshi Nakaso, an executive director at the BOJ, become the bank's top two deputy governors. The ADB said Kuroda had resigned effective March 18.
Kuroda is viewed as part of the global "currency mafia" in Japan. With his long experience and fluent English, he is accustomed to dealing with the world's major central banks and other financial leaders. During his years as Japan's top financial diplomat, he often decried the Japanese yen's rise against the U.S. dollar, saying it did not reflect the fundamentals of the economy.
Despite frequent central bank interventions in the currency markets, the yen has strengthened significantly over the past decade thanks to its status as a safe-haven, and low interest rates that encouraged an international "carry trade" of borrowing in yen and using the money to invest in the bonds of countries with higher interest rates. In 2002, a dollar bought 130 yen compared with 80 yen in November last year before Abe's election.
The prime minister's advocacy of a weaker yen to help support Japanese export manufacturers has lifted share prices and spurred a decline in the value of the Japanese currency, which has weakened by about 20 percent against the U.S. dollar since last fall.
The Nikkei 225 stock index Thursday jumped 2.7 percent to 11,559.36. The dollar was slightly higher at 92.37 yen.
Though Kuroda is seen as more likely to ease monetary policy more aggressively, his leeway to take bolder action on the monetary front is limited, said Julian Jessop, an economist with Capital Economics in London.
The most likely options of increasing government bond purchases, and giving them a longer maturity, would fall short of what the U.S. is doing, while more drastic moves, such as buying foreign bonds or setting a timetable for meeting the 2 percent inflation target, would be unlikely to win support, he said.
This is "setting up the markets for some major disappointment," Jessop said in a commentary.
Once it became clear that the government intended to move ahead with its plan to nominate Kuroda, attention in Japan turned to who will replace him as head of the Manila, Philippines-based ADB, which is a regional development lender. Local reports suggested that the current vice finance minister in charge of international affairs, Takehiko Nakao, be named to take his place. However Japan would need to win support from other ADB member countries for that choice.
Japan's economy is struggling with the aftermath of the 2011 natural and nuclear disasters, rapid aging of its population and the biggest public debt burden among leading industrial economies.
Data from the Ministry of Economy, Trade and Industry released Thursday showed a glimmer of progress, with industrial production up 1 percent in January from the month before. But that was down 5.1 percent from a year earlier and below economists' forecasts for a 1.5 percent month-on-month increase. Retail spending dropped 1.1 percent in January from a year earlier, despite higher spending on food and beverages, the ministry reported earlier.
The ministry cited rising shipments of vehicles, iron and steel and electronics equipment, and of semiconductors and auto parts as the main factors behind the increase from the previous month.
So far, the economy has shown only scant signs of recovery, and that thanks largely to stronger demand overseas as the global economy has gradually improved and the Japanese yen has weakened, helping make exports from Japan more price competitive in overseas markets.