Japan's government nominated two economists to the central bank's board who previously signaled support for stimulus, underscoring forecasts for policy makers to expand asset purchases in coming months.

Prime Minister Yoshihiko Noda's administration yesterday tapped Takahide Kiuchi of Nomura Securities Co. and Takehiro Sato of Morgan Stanley MUFG Securities Co., pending confirmation by the Diet. The picks broke with a practice of choosing candidates from similar backgrounds to the board members they replace; the retired members had business backgrounds.

And:

"Compared with the candidate proposed last time around, I have the impression that they are more inclined towards easing," Takeshi Miyazaki, a ruling Democratic Party of Japan lawmaker who is also a member of the party's anti-deflation group, said in an interview. "It appears they have both been critical of the current BOJ stance to some extent."

Lawmakers and business leaders have urged policy makers to take more steps to combat the appreciation of the yen, which undermines the competitiveness of Japan's exports. The currency has soared 53 percent over the past five years against the dollar, and was at 79.35 as of 12:10 p.m. in Tokyo, up from this year's low of 84.18 in mid-March.

Better Communication

Bringing aboard two investment-bank economists may help strengthen the central bank's communication with financial markets, said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former central bank official. Former BOJ board member Atsushi Mizuno is among those who have criticized the bank for a lack of clarity on its intentions.

When Governor Masaaki Shirakawa and his colleagues unveiled a 10 trillion yen expansion in government-bond purchases on April 27, the impact of the stimulus was diminished by the bank predicting it would achieve victory before long on its inflation goal. The statement was akin to saying the bank would "press on the accelerator and they suddenly hit the brake hard,"Hiromichi Shirakawa, a Credit Suisse economist, said that day.

David Fuller's view One could be forgiven for thinking that policy changes in Japan appear to move at the speed of tectonic plates. Nevertheless it seems clear that an unofficial alliance between Japan's ruling Diet and corporate exporters is slowly isolating BoJ Governor Masaaki Shirakawa.

He has stalled reflationary measures for years, presumably to protect the purchasing power of Japan's many elderly savers. That is laudable, on its own, but not at the expense of ongoing deflation and a further hollowing out of Japan's export-led economy as companies have little choice but to locate more of their factories overseas.

Governor Shirakawa's term does not expire until 6th April 2013 but his influence on monetary policy is slowly being diluted. The IMF's statement today that further BoJ easing would accelerate achievement of Japan's inflation target, and that the yen's exchange rate is overvalued, clearly supports the government and corporate exporters.

Further reflation and a weaker yen against the US dollar, which looks likely on these charts (weekly & daily) now that resistance has been encountered beneath the July 2011 to February 2012 top area and the short-term uptrend has been broken, would help to facilitate Japan's next stock market recovery. It should also lead to a rally in JGB 10-year yields from this month's absurdly low levels.