Federal Reserve Chairman Ben S. Bernanke, who offered Japan a prescription for ending deflation as a Fed board member a decade ago, endorsed Prime Minister Shinzo Abe’s efforts to reflate his nation’s economy.
"They should try to get rid of deflation -- I support their attempts to get rid of deflation,” Bernanke said at a Senate Banking Committee hearing in Washington yesterday. When asked whether Japan had paid a price for its central bank expanding its balance sheet, he said that “depends on your point of view -- the current prime minister thinks they haven’t done enough."
Abe, who took the helm of Japan’s government in December, may tomorrow unveil his nomination for Bank of Japan governor, ushering in a new leadership team that will be charged with achieving a 2 percent inflation target. Bernanke said that while some nations have raised concern about the yen’s decline in recent months, the presumption is that Japan’s focus is on reflating its economy, not on cheapening the exchange rate.
“I don’t think Japan really raises a special case, notwithstanding the rhetoric,” Bernanke said. It’s “mutually beneficial” if major economies that need support for growth take steps to boost demand, he said.
Abe is likely to nominate Asian Development Bank President Haruhiko Kuroda to lead the BOJ, according to two officials familiar with the discussions who asked not to be named earlier this week. The government aims to present Abe’s nominees to lower and upper house parliamentary committees tomorrow, Chief Cabinet Secretary Yoshihide Suga told reporters today in Tokyo.
“We don’t view monetary policy aimed at domestic goals as being a currency war,” Bernanke said. “It’s not like putting tariffs on your imports, so that you can beggar-thy-neighbor to the benefit of your domestic industries.”
Fed policy makers are aiming their stimulus at the domestic economy, he said. The U.S. central bank’s efforts have “had the effect of greatly reducing any risk of deflation,” he said. If prices rise at too-slow a pace, “you run the risk of a Japanese-style situation where prolonged deflation is a barrier to economic growth and stability,” he said.
Bernanke proposed in a May 2003 speech as Fed governor that the Bank of Japan target a level for consumer prices and inject liquidity to finance tax cuts to stoke growth.