Japanese Prime Minister Shinzo Abe’s plan to beat deflation with money printing by the central bank is bound to fail as the root causes are more structural, said Eisuke Sakakibara, a former Ministry of Finance official.
Haruhiko Kuroda was confirmed as Bank of Japan (8301) governor today along with two deputies, ushering in new leadership to pursue Abe’s plan to boost growth by achieving 2 percent gains in the consumer price index.
“They will continue easy monetary policy, but CPI will never reach 2 percent,” Sakakibara, known as “Mr. Yen” for his efforts to influence exchange rates in the late 1990s, said in a Bloomberg Television interview with Susan Li. “This deflation is structural. It’s a result of the integration of the Japanese economy with the rest of east Asia and it has taken place for the last 20 years.”
Japanese consumer prices excluding fresh food fell 0.2 percent in January from a year earlier, government data showed this month. The so-called core inflation rate has decreased an average of 0.2 percent every month over the past decade.
“If you exclude prices of consumer durables like cars and televisions, which have come down, what we have had is stable prices,” said Sakakibara, who served as vice finance minister from 1997-1999. “I don’t agree with policy of getting out of so-called deflation. Nobody’s suffering.”
The yen rose 0.1 percent to 96.04 per dollar as of 4:57 p.m. in Tokyo. It reached a more than three-year low of 96.71 this week and has plunged about 13 percent since Abe’s election in December amid expectations of expanded monetary stimulus.
“I think it will be traded in the range of between 92 and 97, 98, and I think it will be very difficult to go over 100,” Sakakibara, who is now a professor at Aoyama Gakuin University in Tokyo, said about the yen. Markets have “already absorbed” expectations for the BOJ to expand monetary easing, he said.
Kikuo Iwata and Hiroshi Nakaso also won approval today as deputy governors of the central bank. Japan’s main opposition party voted against Iwata, who has been an advocate of monetary easing since the 1990s and has said the government should have more say in setting BOJ policy.
“Iwata is a little bit too extreme,” Sakakibara said. “Iwata’s extremism will be watered down by Kuroda.”
Japan may be able to reach gross domestic product growth of up to 2.5 percent in 2013, while in the U.S., improvements in housing and employment are propelling the economy, he said later at a forum in Singapore.
“The comeback of the U.S. economy this time is real,” Sakakibara said. “I think this trend of the U.S. economy will continue for another two years or three years. And because of that, I think dollar will continue to be very strong, vis a vis other currencies.”
To contact the reporter on this story: Shamim Adam in Singapore at email@example.com