Former Bank of Japan (8301) Deputy Governor Kazumasa Iwata, an advocate of expanded stimulus, joined economists predicting the bank’s new chief Haruhiko Kuroda will fail to meet his deadline for a price target.
“It’s impossible to achieve 2 percent inflation in two years,” Iwata, 66, president of the Japan Center for Economic Research, said in an interview yesterday. Even five years won’t be easy, he said, as the economy is expected to weaken following a planned sales tax rise.
The comments add to skepticism over whether Kuroda can accelerate an end to 15 years of deflation through more easing, with former Morgan Stanley Chief Global Economist Stephen Roach saying yesterday he’s “not convinced” it can work. Those doubts are yet to take hold among investors, with the yen weakening for a second day and bond yields at a 10-year low on bets the central bank will add to stimulus next week.
“It’s hard to believe something that hasn’t happened in the past two decades will happen so quickly,” Yasuhide Yajima, chief economist at NLI Research Institute Ltd., an affiliate of Nippon Life Insurance Co., Japan’s biggest life insurer, said in Tokyo. “Even if the BOJ pumps cash into the economy and everything goes smoothly, the government still needs to implement a strategy to boost growth.”
The yen dropped 0.3 percent to 94.73 per dollar as of 2:52 p.m. in Tokyo, extending its fall of almost 9 percent since the start of the year. The Nikkei 225 Stock Average (NKY) closed 0.2 percent higher, while the yield on the benchmark 10-year note was at 0.515 percent, the lowest since June 2003.
Iwata said Kuroda risks a reversal in the yen if he fails to meet expectations at the BOJ’s next scheduled policy meeting on April 3-4.
Kuroda yesterday reiterated his pledge to do “whatever it takes” to end falling prices, telling lawmakers that he wants to achieve 2 percent inflation in two years.
He said the BOJ will consider combining its monthly bond purchases and asset purchase fund, as well as buying more debt with longer maturities and scrapping a rule that limits the scale of bond buying. He has also suggested bringing forward open-ended asset purchases planned for 2014.
Iwata said that the market is expecting open-ended purchases to start from May, adding that failure to implement any of the “list” of policies risks causing disappointment.
“Not only investors, but also corporate executives and consumers need to believe,” that things are changing, he said in his office overlooking Tokyo’s Imperial Palace.
Toyota Motor Corp. agreed this month to pay its employees in Japan the biggest bonus in five years as the world’s largest automaker expects its net income to triple this fiscal year.
Iwata joins skeptics including Atsushi Mizuno, a former BOJ board member, who said in an interview this month that Kuroda will hit a “wall of reality” because more bond purchases would escalate risks of a market bubble.
Even Prime Minister Shinzo Abe’s economic advisers have expressed skepticism on the chance of the BOJ reaching its goal.
Koichi Hamada, a retired Yale University professor, said this month that failing to reach the 2 percent price target will be acceptable so long as the economy heals after emerging from its third recession in five years last quarter.
Only three of 15 economists surveyed this month by Bloomberg News were “very” or “somewhat” confident the BOJ will get 2 percent inflation within two years.
Deputy Governor Kikuo Iwata, who is unrelated to Kazumasa Iwata, told lawmakers yesterday that resigning would be the best way to take responsibility for failing to meet the target.
Still, some economists think the goal is achievable.
“If the yen keeps weakening, that will boost stock prices, buoy sentiment and help boost demand in the economy,” said Kazuhiko Ogata, chief Japan economist at Credit Agricole SA. (ACA) in Tokyo. “Abe will probably compile a stimulus package to offset the negative impact of raising the sales tax.”
The tax is set to increase to 8 percent in April 2014 and 10 percent in October 2015 from the current 5 percent. Japan’s consumer prices excluding fresh food haven’t advanced 2 percent for any year since 1997, when the tax was last increased.
Iwata, who was deputy governor from 2003 to 2008, was cited earlier this year as a potential candidate to lead the BOJ by economists including Credit Agricole’s Ogata. With Kuroda’s selection for governor, the current leadership is “probably the best team to achieve the price target,” Iwata said.
Indonesian Finance Minister Agus Martowardojo was approved by a commission yesterday to become the next central bank governor and awaits endorsement by the parliament.
France and the U.K. will publish final fourth-quarter gross domestic product data, while Spain and Russia will report inflation figures. In the U.S., data on mortgage applications and pending home sales are due.
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