Another dimensional easing should be a short-term decisive battle for 2 years... Kuroda Bank of Japan What is the next task?
October 6, 16:50
Bank of Japan Governor Kuroda's term ends on October 8, with half a year remaining.
Governor Kuroda has continued monetary easing of a different dimension with the aim of completely breaking away from deflation.
The rate of increase in prices will remain above the target of 2% due to soaring resource prices and other factors, but it is far from the BOJ's initial vision of wage increases and economic growth.
Governor Kuroda has strengthened his stance of continuing monetary easing, but recently there are growing voices pointing out that the depreciation of the yen will accelerate and have a negative impact on the economy.
What will Governor Kuroda aim for in the remaining six months?
What are the challenges you see?
(Economics Department reporter Neil Kato)
Unwanted 2% price hike
Entering October, the “price increase rush” is in full swing.
The prices of foodstuffs that are familiar to our daily lives are increasing one after another.
According to a private credit research company, prices of 6,700 items will be raised in October due to soaring raw material prices and the weaker yen, further increasing the burden on household budgets.
The consumer price index (excluding fresh food) increased by 2.8% in August, surpassing the Bank of Japan's target of 2% for the fifth consecutive month.
Some speculate that it may exceed 3% by the end of the year.
At a press conference in September, Governor Kuroda repeatedly emphasized his stance of continuing with the current large-scale monetary easing, even amid rising prices.
Governor Kuroda
: "Right now, the economy is not in a virtuous cycle of rising wages and rising prices, and it will be difficult to achieve the target of price stability next year and the year after that. There will be no change in continuing monetary easing, so for the time being, will not raise interest rates.”
President Kuroda said that the current price hike is temporary due to rising costs associated with soaring resource prices and the depreciation of the yen. This is the view of
It is necessary to support the economy with monetary easing until prices rise steadily along with wage hikes and economic growth.
Different dimension relaxation Should be a short-term decisive battle for 2 years, but it has become normal
Kuroda assumed office in March 2013.
The Japanese economy was suffering from deflation and the appreciation of the yen.
Shortly after he took office, Governor Kuroda announced that he would achieve the 2% inflation target in about two years.
He will come up with a policy to supply a large amount of funds to the market by significantly increasing purchases of government bonds.
Monetary easing, also known as Kuroda Bazooka.
As a result, the appreciation of the yen was corrected and stock prices rose, and prices, which had been negative, turned upward.
After that, however, price movements stagnated.
In January 2016, the Bank of Japan decided to introduce a "negative interest rate policy" for the first time in the history of the Bank of Japan in order to overcome the situation.
However, it has been pointed out that long-term interest rates may fall into negative territory, which may adversely affect the earnings of financial institutions.
Therefore, in September, while continuing large-scale monetary easing, short-term interest rates were set negative, and long-term interest rates were held at around 0%. Yield curve control was introduced.
Correcting long-term interest rates that have fallen too much due to negative interest rates, the new level of monetary easing has entered a protracted battle in a way that takes into consideration the management of financial institutions.
Still, the inflation rate did not reach 2%, and the Kuroda Bank of Japan, which entered its second term in April 2018, has stopped indicating when the 2% price target, which it has repeatedly postponed, will be achieved.
The dilemma of the rapid depreciation of the yen
And now, the Bank of Japan is facing the dilemma of monetary easing and a weaker yen.
22nd of last month.
In the foreign exchange market, the yen exchange rate plummeted to the upper 145 yen level to the dollar at one point.
For the first time in 24 years, the government and the Bank of Japan decided to intervene in the dollar-selling yen-buying market.
The trigger was President Kuroda's remarks.
At a press conference held after the meeting to maintain monetary easing measures, Governor Kuroda emphasized, "We have no intention of raising interest rates for the time being."
Achieving the price stability target will be difficult next year and the year after that, he said, adding that he did not think it would be necessary to change the "forward guidance," which indicates the future direction of monetary policy, for the next two to three years.
In contrast, the United States has been raising interest rates significantly to curb record-breaking inflation, and the foreign exchange market has been strongly aware of the widening interest rate differential between Japan and the United States, which has spurred the yen's depreciation.
It has also been pointed out that if the monetary easing continues on a large scale, there is a risk that the depreciation of the yen will not be stopped, pushing up prices and putting pressure on household budgets.
However, if the monetary policy turns to tightening, there is a risk that the economy will worsen through rising interest rates without raising wages, etc.
“Making side effects stand out…” Mr. Hayakawa, former governor of the Bank of Japan
Governor Kuroda has half a year left in his term.
How do former BOJ executives view Kuroda's past?
Hideo Hayakawa, who served as a director and director of the Research and Statistics Department at the Bank of Japan until 2013.
Although the different dimension relaxation was a grand experiment, it is evaluated that it had a certain effect at first.
Mr. Hayakawa
``It was an experimental policy that you can't really understand unless you try it. In the first year, the yen depreciated and stock prices rose, which had a certain effect.”
On the other hand, he points out that the grand experiment has shown that it will be difficult to achieve the 2% price stability target through monetary policy alone.
Hayakawa:
"The government and the Bank of Japan issued a joint statement just before Governor Kuroda took office, stating that the Bank of Japan will achieve its 2% inflation target as soon as possible, while the government is promoting structural reforms to increase the growth potential of the Japanese economy. Along with this, there was a need to create a sustainable fiscal base, but almost nothing was done for the other two, and monetary easing alone was not enough to achieve the goal.”
On top of that, he pointed out that side effects such as distortions in market functioning and loosening of fiscal discipline have become noticeable as the extraordinary easing, which should have been a short-term decisive battle, has been prolonged.
Regarding future policies, Mr. Hayakawa says that flexible measures are necessary to correct the rapid depreciation of the yen.
Mr. Hayakawa
``There are two ways to absorb the shock when overseas interest rates fluctuate. If one route is stopped (through yield curve control), exchange rate fluctuations will inevitably increase.As a result of sticking to yield curve control, exchange rate fluctuations will increase and the yen will depreciate excessively. Together, we should be flexible in changing policies.”
“Continuation of monetary easing is necessary” Former Bank of Japan Deputy Governor Iwata
On the other hand, Kikuo Iwata, who has been in charge of monetary policy as a deputy governor supporting Governor Kuroda for five years since 2013.
Iwata, who is known as a so-called “reflationist” who advocates aggressive monetary easing, argues that even if the price stability target is not achieved, it has brought about a situation that is not the deflation that Japan has suffered for many years. emphasize the effect.
On top of that, if it weren't for the consumption tax hike in April 2014, the price stability target would likely have been achieved.
Mr. Iwata:
By the summer of 2014, the 2% price target was on pace to be achieved, but what broke that was the consumption tax hike. Secondly, the government rushed to impose fiscal discipline and suppressed demand by raising the consumption tax, which worsened the economy.Unless we create a system that cooperates with the public finances, it will be difficult to truly break out of deflation.”
He also points out that even if monetary policy is revised, it will not lead to correcting the current depreciation of the yen.
Mr. Iwata:
“The United States has the lowest geopolitical risk, such as being far from Ukraine, and its currency is considered a safe asset, so demand is increasing. Looking at Europe, which is tightening monetary policy, the euro is also The pound is also cheap against the dollar, so raising interest rates won't stop the yen from depreciating."
In addition, it is necessary to continue monetary easing.
Mr. Iwata:
“Currently, the economic situation is not good because of the cost-push price hikes in which grain and oil prices are rising. In addition to the high cost of raw materials, the rise in interest rates will burden companies, and there is a risk that the economy will suffer. It's a policy issue that needs to be addressed."
Issues that have emerged
While the large-scale monetary easing has been evaluated as having rectified the long-standing deflation that has plagued the Japanese economy, it has not yet achieved the price stability target of 2%. It has been pointed out that it is causing various side effects, such as lowering prices and distorting the functioning of the market.
How should we respond to these challenges?
Mr. Hayakawa says that it is necessary to reconsider whether it is necessary to set a price target of 2% now in order to correct the side effects.
Hayakawa:
“The price stability target of 2% is already empty, and many people point out its side effects. Of course, there are those who argue that the price stability target will not change over time, but in the next 10 years, monetary policy will be required to do so. The role of the BOJ is also changing.We need to have a wide-ranging discussion involving not only the BOJ and the government, but also many people about what kind of world the BOJ is aiming for.After that, we need to carefully work on correcting the side effects."
Mr. Iwata on the other hand.
There is some discussion in the market about an exit strategy to review monetary easing, but he points out that persistent monetary easing is necessary rather than rushing the exit strategy toward achieving the price stability target accompanied by wage increases.
Mr. Iwata:
“Nowadays, there are factors that raise wages, such as labor shortages, so employment reforms, such as raising productivity through regulatory reforms, are important. Creating the conditions for raising wages is not raising interest rates, but exiting monetary easing. Japan is deeply rooted in a deflationary mindset, and there is a risk that it will quickly return to a deflationary mindset if monetary easing is stopped.”
Kuroda became the longest-serving governor in history.
Market players around the world are paying close attention to how he will summarize the policy management so far in the remaining six months of his term and how he will take over the next one.
I would like to continue to examine what Kuroda and the Bank of Japan's monetary policies have brought to the Japanese economy and our lives.
Economic Department Reporter
Neil Kato
Joined in 2010 Worked at
Shizuoka and Osaka stations before current position