WASHINGTON, Feb. 4 (UPI) -- The Bank of Japan should have a new leader before the end of the month, but there is already growing concern that whoever is appointed as governor will be disappointing to financial markets, economists said Tuesday.
"What I'm worried about is crushed expectations," said Bert Ely, the head of financial consulting group Ely & Co. He wasn't alone in expressing fears that many investors have pinned too much hope on the changing of the guard at the Japanese central bank.
"The Bank of Japan cannot solve problems alone," one Japanese official taking part in a forum on the future of the country's economy said, speaking anonymously. He added that there was far too much pressure on the BoJ to bolster Japan's ailing economy, which was impossible to tackle solely through monetary policy.
The central bank's current governor, Masaru Hayami, will step down from his five-year term in March. Speculation about his successor has been rife since the end of last year, as financial market participants pegged hopes on a new leader bringing in new ideas and new policies.
Indeed, the yen has fluctuated against the dollar and the euro over the past week on rumors about Hayami's replacement. The yen weakened over the past few days as speculation mounted about the next governor adopting an inflation targeting policy.
Under such a policy, the BoJ would set a goal for an increase in prices in a specified period and pump money into the economy until the goal is met. It would effectively print more money and encourage buying up foreign bonds to increase the money supply, a process that Hayami has continually opposed.
Some economists have argued that inflation targeting would be the single most effective way to get the economy back on track.
Indeed, many lawmakers from the ruling Liberal Democratic Party have emphasized that deflation is a major cause of Japan's continued economic woes, and they have called upon the central bank to combat the deflationary spiral.
But others, including many financial bureaucrats, have argued otherwise, stressing that deflation is only a symptom of the country's continued economic weakness, rather than its primary cause. Many point out that the continued rise in non-performing loans as well as public debt, combined with excessive government spending, have kept Japan in the doldrums for well over a decade.
"Monetary policy isn't going to solve those problems ... and people expect too much from the BoJ," Ely cautioned.
One potential candidate that has come up is Nobuyuki Nakahara, a former member of the BoJ's policy board, who has been a strong advocate of inflation targeting in the past.
Other names that have been bandied about include Toshihiko Fukui, chairman of Fujitsu Research Institute and Nippon Steel chairman Takashi Imai, and others from the private sector.
Both Prime Minister Junichiro Koizumi and Economic and Fiscal Policy Minister Heizo Takenaka have emphasized the need to appoint someone who could think outside the box and approach decade-old problems from a fresh perspective. But the head of the BoJ has traditionally been either a former central bank official or a senior official of the Ministry of Finance.
Whoever is appointed, the task of governing the central bank could be a thankless one.
"It's going to be anti-climatic, after the decision ... expectations have been building up too much," Ely said.
The announcement is expected around Feb. 20.
