On the 24th, the House of Representatives heard the opinion and questioned economist Kazuo Ueda, who was presented by the government as a candidate to succeed Kuroda, the governor of the Bank of Japan.
This column will focus on the "joint statement" of the government and the Bank of Japan, which raised many questions during the policy hearing.
The "Joint Statement" includes the phrase "establishment of a sustainable fiscal structure" along with the "2% price stability target."
However, over the past decade, Japan's fiscal situation has become increasingly severe, and some say that fiscal discipline has loosened.
We examined what kind of role the "Joint Statement" played in Japan's fiscal management.
(Economics Department reporter Neil Kato)
Sustained finances in joint statement
"In strengthening cooperation with the Bank of Japan, the government will steadily promote efforts to establish a sustainable fiscal structure from the perspective of ensuring confidence in its fiscal management.
" Aiming to achieve the goals as soon as possible is one point, but why was the issue of "finance" included as one of the pillars of the joint statement?
Kazuo Monma, who was in charge of coordinating with the government as a director of the Bank of Japan at the time, reveals that it was the Bank of Japan that requested the inclusion of this sentence.
Kazuo Momma, Former Governor of the Bank of Japan
: “The government kept saying until the very end that the BOJ should aim for 2% on its own, and was told that there was no need for a statement that would serve as an excuse. The 2% inflation target was unavoidable, but large-scale monetary easing should not lead to loosening of fiscal discipline. I feared the risk that if the public finances expanded more than necessary, it would lead to malignant inflation and ultimately undermine price stability."
Fighting Fiscal Finance Doubts
The BOJ's adherence to government fiscal discipline stems from bitter experiences in the past.
It is regret that the Bank of Japan directly underwrote a large amount of government bonds issued by the government during the war, which caused the intense inflation after the war.
As long as the BOJ is aiming for the price target of 2%, it is inevitable that monetary easing will be further strengthened and the purchase of government bonds will increase sharply.
But there needs to be some kind of restraint.
It is said that the word "fiscal" included in the "joint statement" reflects the BOJ's desire to put a brake on it.
In fact, the Bank of Japan had a voluntary rule that acted as a "stop".
This is the "banknote rule" established in 2001 when the "quantitative easing policy" was introduced.
This is to keep the balance of long-term government bonds held by the Bank of Japan below the amount of bills (banknotes) circulating in the market.
The Bank of Japan aimed to demonstrate to the outside world that it would not engage in fiscal financing, and to exercise self-discipline.
Regarding this, then-Governor Hayami said, ``It is natural that (the quantitative easing policy) is not intended to support the purchase of government bonds or finance the government's finances, but it is essential to prepare a clear brake so as not to be misunderstood. It is," he explained.
However, the "comprehensive mitigation policy" introduced in 2010 effectively broke this rule.
This policy sets up a "fund" to purchase assets such as government bonds separately from conventional monetary policy, and long-term government bonds purchased under this "fund" are exempt from the application of the "bank note rule". It is to do.
At the time, Governor Shirakawa explained that the comprehensive easing measures were nothing more than temporary and unusual measures, but he said, "If we create a small loophole in relation to banknote rules, there is a risk that it will expand from there and create misunderstandings. I think there are other aspects,” he said.
It can be seen that he was apprehensive about setting and operating an "exception" to the rule.
Suspended “banknote rule”
Then, in April 2013, Governor Kuroda announced a different dimension of easing soon after taking office, and announced a policy to purchase a large amount of government bonds, completely turning the "banknote rule" into namelessness.
So, did the "banknote rule" have been abolished? Instead, it was decided to be a "temporary suspension".
Why did the "bank note rule" remain?
According to BOJ officials, there were many opinions that the basic idea of the banknote rule should remain, which is that the government should not buy government bonds unrestrained without the purpose of monetary easing.
The BOJ's new reference point was the "joint statement" with the government.
He continued to buy large amounts of government bonds, relying on the government's role of "establishing a sustainable financial structure."
What happened as a result?
The outstanding amount of government bonds issued is expected to reach 1,042 trillion yen by the end of fiscal 2022, an increase of more than 330 trillion yen over the next 10 years.
It is pointed out that the background to the rapid increase in the outstanding amount of JGBs is that the Bank of Japan continued large-scale monetary easing by purchasing a large amount of government bonds.
As of the end of September last year, the Bank of Japan held more than 500 trillion yen in government bonds, making up half of the outstanding balance of government bonds issued.
The Bank of Japan explains that it does not directly underwrite government bonds but buys them from the market, so it is not fiscal financing, but it is pointed out that the financial institution that wins the government bonds immediately sells them to the Bank of Japan. There are concerns that the Bank of Japan is approaching direct underwriting, which is prohibited by Article 5 of the Public Finance Law.
Under the current joint statement, in which the Bank of Japan aims to achieve a price stability target of 2% and the government is working on fiscal consolidation and growth strategies, each party is "single-minded", checking and checking each other.・There are voices saying that verification is no longer possible.
In 2016, the Bank of Japan conducted a "comprehensive examination" of the effects and challenges of the unusual monetary easing under Governor Kuroda on the economy and prices. did not.
Kazuo Monma, a former governor of the Bank of Japan, points out that the BOJ should also explain to the public the impact of large-scale monetary easing on its public finances.
“In the end, the government decides fiscal policy and the Bank of Japan decides monetary policy independently, but they influence each other and affect prices and the economy. I think there is some room for argument that the BOJ's policies have actually loosened fiscal discipline, as it has taken steps such as raising the consumption tax rate twice. The BOJ has a responsibility to explain to the outside world what it thinks, and we need to seek their understanding.” On the other hand, former BOJ Vice Governor Kikuo Iwata said
, He argues that achieving the 2% price stability target should be prioritized over fiscal consolidation, and that the joint statement should be deleted from the part that encourages fiscal discipline.
“When governments and central banks enter into policy agreements, all countries deal with monetary policy, and Japan is the only one that includes fiscal policy. Easing resulted in a situation where deflation was no longer in place and employment improved, but before the deflationary mindset was completely eradicated, the consumption tax rate was raised, which led to a drop in consumption and failed to achieve the target. Fiscal discipline should be removed from the statement, and the first priority should be to restore economic strength and thereby increase tax revenue."
What did Mr. Ueda say?
So, what did Kazuo Ueda say about this issue when he attended the House of Representatives hearing on the 24th as the new governor of the Bank of Japan?
Mr. Ueda
: “Currently, we are purchasing a large amount of government bonds under monetary easing policy, but we are not doing this for fiscal financing, we are purchasing from the market. The goal is to achieve a stable 2% price target.Therefore, as a natural consequence, we will stop purchasing such a large amount of government bonds
once
that target is achieved."
He expressed the idea that there was no need to review the
"Since 2013, the government and the Bank of Japan have implemented the necessary policies in line with the joint statement, and the Japanese economy has steadily improved, with wages rising and prices continuing to decline. In this sense, I believe that the policy coordination between the government and the Bank of Japan has steadily produced results, and that is why I do not think there is a need to immediately revise (the joint statement). "
How to realize sustainable financial establishment
The ``Reiwa National Conference'', commonly known as ``Reiwa Rincho'', in which experts such as economic officials and university professors participate, said in January that the BOJ's purchase of government bonds would effectively support the expansion of finances. He issued an urgent recommendation that the government and the Bank of Japan's "joint statement" should be reviewed, as it is causing "interaction".
Will there be a review of the "joint statement"?
We are also watching the financial markets.
The focus will be not only on the government's stance on how to establish a sustainable fiscal policy, but also on how the new BOJ will conduct monetary policy.
attention schedule
On the 27th of next week, Kazuo Ueda, the candidate for the new governor of the Bank of Japan, is scheduled to state his opinion at the House of Councilors following the House of Representatives.
On the 3rd, the February consumer price index for Tokyo's 23 wards will be released.
The index excluding fresh food in January was 4.3%, the highest level in about 41 years.Will the record price rise continue?
It is attracting attention as a leading indicator that is published ahead of nationwide data.