Bank of Japan meeting heralds new direction

The Bank of Japan wraps up a policy meeting on Thursday that marks the last for outgoing governor Masaaki Shirakawa whose tenure was marred by public sparring with the nation's premier over policy.

Shirakawa's departure on March 19, about three weeks before the end of his term, also heralds the start of what could be a major policy shift for the central bank as the government demands action to stoke the listless economy.

Shirakawa's replacement, Haruhiko Kuroda, a finance veteran who has announced his resignation as head of the Asian Development Bank, is likely to be confirmed by parliament in the coming weeks.

The 68-year-old Kuroda has long criticised the BoJ for doing too little to lift the world's third-largest economy, and is seen as likely to lead a fresh drive for more spending and aggressive monetary easing to beat deflation, putting him squarely in Prime Minister Shinzo Abe's policy camp.

On Monday, Tokyo's nominee for the BoJ's top job said he would do "everything possible" to tackle the falling prices that have weighed on Japan's growth since the 1990s, crimping spending and business investment.

Abe cruised to a landslide victory in December elections on pledges to reverse Japan's fortunes with a mix of big spending and aggressive monetary easing, a prescription that put him on a collision course with Shirakawa, 63.

The conservative premier had openly said he would like to turf out Shirakawa, and threatened to change a law mandating the bank's independence if it did not fall into line, stirring protest from central bankers abroad.

The bank's two-day meeting was expected to wrap up Thursday with no fresh policy moves as it gets set for a new management team, and after announcing in January an unlimited easing programme and two-percent inflation target aimed at reversing deflation.

The asset purchase policy is similar to the US Federal Reserve's unlimited monthly bond-buying programme, known as quantitative easing.

The BoJ meeting "has of course been overshadowed by the imminent departure of Governor Shirakawa and his two deputies," London-based Capital Economics said in a note.

"The current board will probably be happy to sit on the sidelines until the new team is in place and we do not expect any further policy changes until April."

Shirakawa, who spent more than three decades at the BoJ before leaving in 2006 to become a professor, took up the governor job in April 2008, just months before the collapse of Wall Street titan Lehman Brothers which heralded the start of the global financial crisis.

An expert on monetary policy with no government background, Shirakawa was considered the brain behind the BoJ's unorthodox use of aggressive easing which until 2006 had flooded the banking system with virtually free money after zero interest rates alone failed to tackle persistent deflation.