The term of office of Governor Kuroda of the Bank of Japan is eight days, leaving one year remaining.


With soaring raw material prices, there is a growing belief that inflation will reach the target of 2% from this month, but Governor Kuroda said that wages and demand will not be boosted, and that large-scale monetary easing will be carried out. It shows the policy to continue.



On the other hand, the yen is depreciating due to the difference in policy direction between Europe and the United States, which is turning to monetary tightening, and the burden on households and companies is increasing. You will be forced to steer.

The Bank of Japan's Governor Kuroda, who took office in March 2013 and has the longest tenure in history, has a term of office until April 8, next year.



To overcome deflation, we have embarked on a large-scale monetary easing with the goal of raising prices by 2%, and have continued to ease monetary policy for the past nine years.



Under these circumstances, there is a growing view that the consumer price index will rise to 2% from this month due to the impact of soaring prices of raw materials such as energy.



However, Governor Kuroda has indicated that he will continue monetary easing, saying that it is not accompanied by rising wages and rising demand.



On the other hand, the United States and other countries, where concerns about inflation are increasing, have turned to tightening monetary policy, and the depreciation of the yen is accelerating due to differences in policy directions.



If monetary easing continues, the yen may depreciate further and the prices of imported raw materials may rise, and if monetary tightening is turned to curb it, the economy may cool down. You will be forced to steer difficult.



Furthermore, it is expected that the government will begin full-scale consideration of the replacement personnel that will succeed Governor Kuroda.

Kuroda's monetary policy

Governor Kuroda has announced a policy of significantly increasing the purchase of government bonds and supplying a large amount of funds to the market, saying that the price target of 2% will be achieved in about two years.



The large-scale monetary easing, also known as "Kuroda Bazooka," caused the yen to depreciate and stock prices to rise, and the rate of increase in the consumer price index, which had been negative, turned positive.



However, despite continued large-scale monetary easing, the inflation rate did not reach the target of 2%, and in January 2016, we decided to introduce the first "negative interest rate policy" in the history of the Bank of Japan.



Negative interest rates are applied to some of the current deposits held by financial institutions, with the aim of increasing the amount of money circulating in the world, but the profits and asset management of financial institutions are being squeezed. The voices pointing out "side effects" gradually became stronger.



Under these circumstances, in September 2016, the Bank of Japan introduced a monetary policy of keeping short-term interest rates negative and keeping long-term interest rates at around 0% while continuing large-scale monetary easing, and continues this framework even now. increase.



In order to support the economy affected by the new coronavirus, monetary easing continued, such as raising the upper limit of purchases of government bonds and ETFs = exchange-traded funds that make multiple stocks together. Until then, the price target of 2% has not been achieved.

Between monetary easing and yen depreciation

The Bank of Japan, led by Governor Kuroda, is in a dilemma between monetary easing and the depreciation of the yen.



The prices of various products and services such as gasoline and groceries are rising due to the soaring prices of raw materials such as crude oil, metals and grains, and the rate of increase in the consumer price index has reached the target of 2% from this month. The view that it will reach is increasing.



However, Governor Kuroda said, "Monetary tightening is not appropriate because there is a concern that the economy will slow down," saying that it is not accompanied by rising wages and demand, and will continue to ease monetary policy until it creates a virtuous cycle of the economy. Indicates a policy to continue.



While the Bank of Japan has indicated its policy of adhering to monetary easing, the Fed, the central bank of the Federal Reserve Board, is rushing to raise interest rates in order to curb historic inflation.



Due to this difference in the direction of monetary policy between Japan and the United States, there is a strong awareness that the interest rate differential between Japan and the United States will widen in the foreign exchange market, leading to the acceleration of the depreciation of the yen and the appreciation of the dollar.



In particular, the BOJ took a measure called "continuous limit operation" last month to buy unlimited government bonds at a specified yield in order to curb the rise in long-term interest rates, which is a sign that the BOJ is sticking to monetary policy. It was accepted and the depreciation of the yen accelerated.



The yen depreciated by 10 yen in the past month, and the dollar rose to the 125 yen level on the 28th of last month for the first time in about 6 years and 7 months.



Some say that the yen will continue to depreciate if the direction of monetary policy in Japan and the United States does not change.



Governor Kuroda is in the position that "the depreciation of the yen is positive for the Japanese economy as a whole", but if the yen depreciates further while the prices of raw materials soar, import prices will rise, leading to further price increases for various products and services. There are also concerns that household and corporate profits will be squeezed and the downside will increase.



Governor Kuroda has indicated that he will continue monetary easing, but if that happens, the yen will depreciate further and there is a risk that it may lead to economic deterioration.



On the other hand, if monetary tightening is turned to curb price increases, there is a risk that the economy will retreat through rising interest rates without realizing wage increases and demand increases.



In other words, whichever option you choose can lead to economic downturns, making policy steering extremely difficult.

Former Bank of Japan Director "Is it unlikely that there will be a clear revision of monetary policy?"

Eiji Maeda, president of Chibagin Research Institute, who served as a director of the Bank of Japan until the end of the year, said that Kuroda's current policy is to sustain a 2% price increase in the direction of monetary policy over the next year. "Unlike the United States, the economic recovery from the Corona disaster is still sluggish. It is unlikely that monetary policy will be clearly revised," he said. Is it? "



On top of that, "At the beginning of my inauguration, it was a simple and easy-to-understand message, but there is also a view that it became difficult to understand from the middle. The message of the effect is strong, and I think it's better to explain it a little more carefully. "

Monetary Policy Expert "Flexible Monetary Policy Management"

Sayuri Kawamura, a senior researcher at the Japan Research Institute, who is familiar with monetary policy, commented on the direction of monetary policy over the next year. Flexible monetary policy management is desired. "



Specifically, he pointed out that it may be an option to consider reviewing the monetary policy framework, which states that short-term interest rates will be negative and long-term interest rates will be adjusted at around 0%.



On top of that, regarding the so-called exit policy that normalizes large-scale monetary easing, "It is a difficult situation to reach the end of the term without touching anything on the exit policy. I think it is necessary to work together with them. "