The Japanese Parliament has approved Prime Minister Shinzo Abe's nominees to join the Bank of Japan (BoJ) on Friday.

Haruhiko Kuroda won the majority of votes in the upper house to become the central bank's next Governor. Kuroda is expected to implement the aggressive monetary stimulus that he has so far touted to meet the new inflation target of 2.0%.

Kuroda will now have a chance to make things right following a book he wrote in 2005 titled "Success and Failure of Fiscal and Monetary Policy", in which he criticised the BoJ for not getting its policies right. Kuroda advocated an inflation target long before the central bank set one.

Parliament also approved Abe's picks for two deputies, one of whom is Kikua Iwata, a strong BoJ critic and considered too radical by some.

Expectations Are High

Analysts are now alert to whether the central bank will live up to the expectations set by Abe and Kuroda. In fact, rumours point to the possibility of an extraordinary meeting as Kuroda steps into his new role.

"The next focal point is whether Kuroda will hold an emergency meeting," said Shuichi Obata, senior economist at Nomura Securities. "The BoJ is likely to extend the maturity of assets it buys and expand bond purchases."

Options range from accelerating bond-purchase plans to setting a target for expanding the monetary base.

"Expectations are extraordinarily high," said Frederic Neumann of HSBC Holdings. "If policy makers don't follow through, they will quickly see the yen rally again."

Critics speak out

However, some economists remain skeptical over whether Kuroda will be able to achieve 2.0% inflation within two years, the timeframe he recently suggested in an interview, according to Bloomberg.

Critics are also concerned of the negative consequences that the new policies may have on the Japanese economy, saying that structural changes must be implemented by the government.

"They will continue easy monetary policy, but consumer price inflation will never reach 2.0%," said Former Ministry of Finance official Eisuke Sakakibara. "This deflation is structural. It's a result of the integration of the Japanese economy with the rest of east Asia and it has taken place for the last 20 years."

Finance Minister Taro Aso said quantitative easing alone won't end deflation and said the BoJ's independence will be an issue if it is seen as directly financing government debt.

In fact, Iwata, the new Deputy Governor, has in the past called for the government to have more say in setting policy goals. Abe himself, during his campaign, threatened to change the law that ensures the bank's independence in order to assure aggressive policy.

JP

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