TOKYO, March 20 (Xinhua) -- The Bank of Japan's two newly appointed deputy governors assumed their posts Monday facing immediate concerns that instability in global banking sectors could affect lenders here, with the new leadership heading towards longer-term policy headwinds.

Ryozo Himino, a former commissioner of the Financial Services Agency, and Shinichi Uchida, a former executive director at the central bank, will serve for five years under new Bank of Japan (BOJ) governor Kazuo Ueda.

Ueda, a former BOJ policy board member who was instrumental in introducing the BOJ's zero interest rate policy and quantitative easing measures, will succeed Haruhiko Kuroda whose 10-year tenure will end on April 8.

The BOJ's new leadership has told parliamentary hearings recently that they intend to continue with the central bank's massive monetary easing program to underpin the country's sluggish economy.

The long-running program has come under heavy criticism for requiring massive purchases of government bonds which comprise more than half of the government's outstanding debt.

While stressing the need to maintain the bank's ultra-easy monetary policy and achieve the bank's 2 percent inflation target in a manner that is both stable and sustainable, the increasing holdings of state bonds are adding to the nation's fiscal woes.

Japan has a public debt amounting to more than half the size of its gross domestic product (GDP) and is the worst in the industrialized world, with the deficit continuing to swell as social welfare costs, in particular, rise exponentially as Japan's population continues to simultaneously age and shrink.

While companies can borrow from the central bank at ultra-low interest rates and ostensibly boost business, subdued capital spending and private consumption amid soaring inflation are impacting growth, with the bank's policy contributing to the country's dire fiscal health.

The BOJ, with its new leader and two deputies set to continue with Kuroda's monetary easing policy, has also contributed to the weakening of the yen, which further inflates import costs for resource-poor Japan, as the bank's peers, such as the U.S. Federal Reserve, have hiked their rates in a bid to tame decades-high inflation.

The bank's new leadership will now also have to contend with the potential fallout from the recent collapse of two major U.S. banks, and Swiss behemoth Credit Suisse losing its top investor and initially needing to be propped up by the Swiss central bank and now is acquired by UBS, Switzerland's largest bank.

Japanese Economy Minister Shigeyuki Goto and Finance Minister Shunichi Suzuki have both tried to allay fears that contagion from the U.S. banking failures and Credit Suisse's liquidity crisis will not spread to Japanese banks.

But as the crisis continues to unfold in the United States, with contagion fears directly causing Wall Street to retreat deep into negative territory late last week, economists here believe the U.S. Federal Reserve will now likely not take the breaks of its interest rate hikes.

For Japan, this means the continuation of market turbulence, and a widening gulf in interest rates. This feedback loop impacts investor sentiment, further weakens the yen and pushes up import costs, and is seeing consumers and households here tighten their purse strings.

The BOJ's new leadership, in pledging to adhere to its timeworn monetary policy, believing that current inflationary pressure is transient and Japan's banking system is impervious to potential global contagion, face both imminent and longer-term headwinds. Enditem

Related

Go to Forum >>0 Comment(s)