The 63-year-old Shirakawa, a University of Chicago-trained economist, insists monetary policy can have only a limited impact in the battle against persistent deflation that has come to define two decades of Japan’s economic stagnation. “The central bank, as an institution, was under threat and people there were getting pretty desperate, feeling that something had to be done,” said a former BOJ official who remains in touch with central bank executives. The full effect of that pivot is expected after April when Shirakawa is due to step down, according to more than a dozen interviews with those involved in the process. And the pressure is having a big impact: it was the catalyst for a radical rethink in central bank policy. Shirakawa has been summoned 29 times so far in 2012, a decade-long record. Those five days of intense grilling and the ones that have followed have been among the most intense ever faced by a Japanese central bank governor. So the central bank surprised the markets in February by setting an inflation target for the first time of 1 percent and announcing a $122 billion increase in its asset-buying program. The threat from lawmakers to withdraw the BOJ’s charter granting its independence was what changed his mind, the sources said. Shirakawa had been opposed to another round of policy easing, though most members of his policy board were actually arguing for it at that time, according to sources familiar with the bank’s internal discussions. Some angry lawmakers even questioned whether the Bank of Japan should retain its independence from the government. “We need a new governor,” one MP shouted during one session. Shirakawa tried to defend his cautious approach to easing monetary policy, but his tremulous voice was often drowned out by jeers from the benches.
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