This is how the joint statement of the government and the Bank of Japan was born [Bank of Japan verification 1] February 1, 19:24

Ten years have passed since the government and the Bank of Japan issued a joint statement aimed at overcoming deflation and achieving sustainable economic growth.

The excessive appreciation of the yen has been corrected, and the Japanese economy is no longer deflationary.

However, the 2% price target set in the statement has not yet been achieved.

The situation is far from the government's goal of establishing a sustainable financial structure.

What did the joint statement bring to the Japanese economy?

And where were the limits?

In the first installment of the Bank of Japan verification series, we will look at the background to the birth of the "Joint Statement."

(Economics Department reporter Neil Kato / Koki Nishizono)

Background to the Birth of the Joint Statement

Why was a “joint statement” by the government and the Bank of Japan necessary 10 years ago in the first place?

Behind this is severe criticism from politics and society that the Bank of Japan has not fulfilled its responsibility to overcome deflation.

At that time, the Japanese economy was facing a variety of challenges, including the historical appreciation of the yen, and was unable to escape from protracted deflation.

In October 2010, the Bank of Japan began purchasing long-term government bonds and ETFs, which had been prohibited until then, under the newly established "fund" under the framework of the "comprehensive easing policy." was not seen at all, and the criticism turned to the Bank of Japan.

The Bank of Japan was strongly urged to set a high inflation target and to pursue monetary policy responsibly toward its achievement.

Until then, the Bank of Japan defined the situation in which Policy Board members understood that prices were stable in the ``understanding of medium- to long-term price stability.'' The majority of people are thinking about 1%."

However, in January 2012, the US Federal Reserve announced its long-term inflation target, prompting calls for the Bank of Japan to set an inflation target as well.

At the February 2012 Monetary Policy Meeting, the Bank of Japan introduced a "medium- to long-term price stability target."

The Bank has announced a policy of "targeting 1% for the time being" as the level of price increase that is sustainable over the medium to long term.

There was a lively discussion at the meeting on changing the expression of price stability from "understanding" to "target."

What is the appropriate expression to show the BOJ's will to overcome deflation and ensure policy flexibility?

At the meeting, the authors carefully examined the matter while referring to Chinese-Japanese dictionaries and other sources.

If it is set as a "target," there is a risk that it will be forced into a mechanical policy management, and it should be avoided.

Should it be "goal" or "goal"?

I feel that the "goal" is heading towards the goal.

Then, what is the English notation for “goal”?

Discuss candidates such as "Target", "Goal" and "Aim" one by one.

The conclusion is "Goal".

Finally, how do you read the "purpose"?

Is it a “medo” or a “mokuto”?

I settled on "target" because it is familiar to the people.

President Shirakawa at the time said, ``There is a possibility that words will eventually take on a life of their own and depart from our intentions.''

In October of the same year, the then Democratic Party of Japan (DPJ) government compiled a document titled "Efforts to overcome deflation," signed by the governor of the Bank of Japan and economic ministers.

However, the Bank of Japan was increasingly criticized for setting high "targets" rather than "targets" for prices and earnestly working to break out of deflation.

Kazuo Momma, Former Governor of the Bank of Japan

: “At the time, the political and economic world had a strong perception that deflation was the biggest problem for the Japanese economy. The argument stemmed from the perception of economics at the time that inflation and deflation were ultimately monetary phenomena, and as a result became the dominant way of thinking.”

Toward the setting of the 2% inflation target

The turning point was the general election of the House of Representatives on December 16, 2012.

The Liberal Democratic Party led by President Abe won a landslide victory, and the election pledges of "bold monetary easing", "price target of 2%", "strengthening cooperation between the government and the Bank of Japan", and "revision of the Bank of Japan Law" should be considered in reality. As a policy menu, it has become a form that was thrust at the Bank of Japan.

Here, the Bank of Japan was most concerned about the revision of the Bank of Japan Law.

At that time, what was the intention of Governor Abe and others in appealing for “revision”?

Mr. Etsuro Honda, who served as an adviser to the Cabinet Secretariat in the second Abe administration and was involved in policy planning for Abenomics as a brain, says as follows.

Mr. Etsuro Honda:

"At the time, the Bank of Japan had set a goal of 1% inflation, but it was a vague expression that was different from the 'target', and the responsibility for achieving it, and the accountability if it was not achieved. In addition, the Bank of Japan Law did not specify what level of price level or rate of price increase should be aimed at, and only contained an abstract description of the "philosophy" of price stability. In order to proceed, we needed a legal basis for the objectives and responsibilities of monetary policy, and I thought we should clarify the target values, means, and timing of achievement."

What the Bank of Japan most wanted to avoid was this revision of the Bank of Japan Law.

The current Bank of Japan Act, which came into effect in 1998, changed the contents of the previous state control system and emphasized the independence of the Bank of Japan.

On the other hand, Article 4 stipulates that ``we must always keep close contact with the government and ensure sufficient communication so that it is consistent with the basic policy of the government's economic policy.''

President Shirakawa visits the president's office at the LDP headquarters two days after the general election.

During the 20-minute meeting, Governor Abe asked for the establishment of a 2% inflation target and the conclusion of a policy agreement between the government and the Bank of Japan.

In order to avoid revision of the Bank of Japan law, the Bank of Japan has decided that it is unavoidable to put policy cooperation with the government in the form of documents.

Then why did the government and the Liberal Democratic Party issue a joint statement instead of revising the Bank of Japan law?

I asked Mr. Etsuro Honda.

Mr. Etsuro Honda:

"Escape from deflation is an urgent issue, but the procedure for legal revision will take time. In the form of a joint statement, the price stability target of 2% and the time frame for achieving it will be clearly included, and accountability will be required. Early action was needed to get the economy, which had already been stagnant due to prolonged deflation, back on a growth trajectory.”

The battle between the government and the Bank of Japan over the “Joint Statement”

January 22, 2013, about a month after the start of the new Abe administration.

A joint statement by the government and the Bank of Japan will be released.

A joint statement titled "Regarding policy collaboration between the government and the Bank of Japan for overcoming deflation and realizing sustainable economic growth."

The text is only about 860 characters on one A4 sheet.

However, in adjusting this wording, the government and the Bank of Japan engaged in a fierce battle behind the scenes.

The hardest hit was the timing of achieving the 2% inflation target.

Initially, the government insisted on a two-year deadline, but the Bank of Japan requested, "We cannot promise to achieve the target in two years. We would like the term 'medium- to long-term' to be used without specifying a deadline."

However, the government dismissed it, saying, "It's no good because it's an expression that you work slowly."

After that, the Bank of Japan could use the phrase "early, as soon as possible," but conceded that the condition would be to include the nuance of "within the scope of what is possible." bottom.

"We recognize that the inflation rate consistent with sustainable price stability will increase as efforts by a wide range of entities to strengthen the competitiveness and growth potential of the Japanese economy progress."

There was a lot of back and forth over this article.

Mr. Kazuo Momma, who coordinated with the government as a director at the time, testified as follows.

Kazuo Momma, Former Governor of the Bank of Japan

: “‘Efforts to strengthen competitiveness and growth potential’ are growth strategies, and this is what the government will do. It is written here.Based on that, the price target of 2% is set.In other words, it says that 2% cannot be achieved in the first place unless the conditions in the previous paragraph are met.That is the big point. , The issue is whether the BOJ alone can achieve 2%, or whether it can be achieved without the cooperation of the government and the BOJ.The sentence written in the statement says that it cannot be done without the cooperation of the government. Instead, I intentionally use an iridescent expression. You can't understand it just by reading it.

The other is to "examine risk factors, including the accumulation of financial imbalances, and confirm whether any problems have arisen from the perspective of ensuring sustainable economic growth."

It is said that there was also a particular focus on this phrase.

Kazuo Momma, Former Governor

of the Bank of Japan: “The Bank of Japan is very particular about this, and it wants to maintain flexibility in its monetary policy. If that is the case, then I will stop the 2%.In the first place, I will not pursue a target that will cause problems.It means that I will not use unreasonable means.The Bank of Japan is taking the truth about the issues surrounding the joint statement. However, if I write it that way, I can't agree, so I wrote all the issues vaguely."

While pursuing “2%”…

On April 4, two and a half months after the announcement of the joint statement, the Bank of Japan launched a large-scale monetary easing policy, also known as the “Kuroda Bazooka.”

Therefore, Governor Kuroda indicated that the deadline for achieving the price target of 2% was "about two years."

He showed his resolve to easily overcome the wording of the joint statement, which was carefully crafted by adjusting the differences in interpretation, and face a short-term decisive battle to achieve the goals.

Since then, the Japanese economy has returned to a non-deflationary state, but the price target has not been achieved not only two years ago, but even ten years later.

In the joint statement, which was, so to speak, a product of compromise, the "2% inflation target" that the Japanese economy has single-mindedly pursued.

What was lost in the process?

And what are the new challenges that have arisen?

From the next time onwards, we will examine the past 10 years centering on the "Joint Statement."

Economic Department Reporter

Neil Kato

Joined in 2010 Worked at

Shizuoka and Osaka stations before current position

Reporter

Koki Nishizono Joined the Bureau in

2014

After working at the Oita Bureau