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Reflationist BOJ newcomer no pushover for more Japanese easing

A general view of headquarters of the Bank of Japan in Tokyo, Japan.
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A general view of headquarters of the Bank of Japan in Tokyo, Japan.

Markets believe the Bank of Japan's reflationary credentials will be burnished by new board member Yutaka Harada this month, but a closer look at his views suggests he is unlikely to back an early expansion in the bank's massive monetary stimulus.

The 64-year-old Waseda University economist certainly believes, like BOJ Governor Haruhiko Kuroda, that monetary stimulus, if deployed aggressively enough, can reflate Japan out of two decades of falling prices and fitful growth.

And he believes the means, buying government debt, carries little cost because the BOJ can print yen without limit.

Such views, more aggressive than those of the man he will replace, Ryuzo Miyao, have fueled expectations that Harada shares Kuroda's 'whatever-it-takes' approach to hitting the BOJ's 2 percent inflation target, and would support further easing to reach the goal in the fiscal year starting in April.

But Harada's past comments and writings show that, unlike his new boss, he sees economic growth as a greater priority than inflation, such that it might be unwise to do too much to boost prices before there is sufficient job and wages growth.

Read MoreAnalysts still see more BOJ stimulus coming

So even as inflation grinds to a halt under the weight of falling oil prices - it was just 0.2 percent in January after stripping out a sales tax increase - his appointment may not increase the likelihood of further monetary easing, some analysts say.

"I think it's OK even if the BOJ doesn't achieve 2 percent inflation in fiscal 2015," Harada told Reuters in an interview in January. "It's important, rather, to guide policy so that the economy can continue to grow around 2 percent."

In a book published in November, he said the BOJ's inflation target was a means, not a goal, of monetary policy and that the bank's focus ought to be on stimulating growth.

Kuroda, by contrast, has consistently maintained that the BOJ's priority is to hit the price goal and that the deadline is key to eradicating what he calls the public's "deflationary mindset".

With the government of Prime Minister Shinzo Abe also appearing more relaxed about inflation, the BOJ chief, already presiding over a split board, is in danger of finding himself isolated.

In recent days, advisers Koichi Hamada and Etsuro Honda, who counselled Abe on the need for radical easing, have told Reuters that the BOJ could cut its inflation target and that cheaper crude did not require further action.

Harada's views suggest he is among those who are more relaxed about the timeframe for hitting the target, said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

"Many on the board aren't willing to ease again soon and, more importantly, there's no government pressure for action," he said. "Taken together, near-term action seems off the table."

Harada's predecessor Miyao, who steps down on March 25, swung the board in favor of last October's surprise 5-4 decision to expand the bank's huge purchases of government bonds and other assets.

Since then, the board has been divided between Kuroda and his two deputies, who are adamant about hitting the price target, and the six other members who are cautious of acting again just to accelerate inflation.

Many market players expect the BOJ will ease again sometime this year, with some predicting action as early as April, when the BOJ issues new long-term price forecasts.

But analysts say those who think an early move is made more likely by the newcomer could be in for a surprise this month, when Harada, whose nomination has been approved by both houses of parliament, holds an inaugural news conference.