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BOJ Easing Will Fail to Spur 2% Inflation, Waseda’s Noguchi Says

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March 18 (Bloomberg) -- Japanese Prime Minister Shinzo Abe’s path to revive the world’s third-biggest economy through increased monetary stimulus will fail to turn around persistent deflation, said Waseda University professor Yukio Noguchi.

That contrasts with the views of Abe’s picks to run the Bank of Japan. Haruhiko Kuroda, due to become BOJ governor after being approved by Japan’s parliament last week, has said the central bank should buy a large amount of longer-term bonds to achieve its goal of 2 percent inflation. Kikuo Iwata, confirmed as one of two deputy governors, has said bond buying can end deflation within two years.

“Quantitative easing doesn’t work effectively,” said Noguchi, 72, an adviser at Waseda’s Financial Research Institute in Tokyo. “Liquidity in the banking system has been vastly expanded, but the money stock didn’t react. Not just in Japan - it’s the same phenomenon in the U.S. It’s common sense around the world.”

BOJ Governor Masaaki Shirakawa, due to step down tomorrow along with two deputies, and his board left policy unchanged at their last meeting on March 7. The BOJ under Shirakawa pledged to keep the value of its bond holdings below the amount of cash in circulation, excluding a 76 trillion yen ($801 billion) asset-purchase fund which it counts separately.

If the BOJ begins to directly underwrite Japanese government bonds, a process known as monetization, it could lead to capital flight, a plunge in the yen and runaway inflation, Noguchi said. That may be the only way the nation can lighten the burden of its public debt, he said.

‘Structural Reform’

Outstanding obligations will probably balloon to 245 percent of economic output this year, the most in the world, according to an estimate by the International Monetary Fund.

Japan returned to growth in the fourth quarter, data showed on March 8, bolstering Abe’s campaign to end 15 years of deflation and revive the world’s third-biggest economy. That contrasted with a report last week showing a plunge in machine orders in January.

“What Japan’s economy needs in order to be revitalized is structural reform,” according to Noguchi. “It’s not monetary policy.”

Japanese consumer prices excluding fresh food fell 0.2 percent in January from a year earlier, the third-straight decline, the statistics bureau said on March 1. So-called core consumer prices have declined an average of 0.2 percent each month over the past decade, according to data compiled by Bloomberg. The BOJ adopted a 2 percent inflation target in January at Abe’s urging.

“An inflation target has been set, but it’s pretty obvious it won’t be realized,” Noguchi said. “Even if monetary policy can pull at prices, it can’t push.”

To contact the reporter on this story: Shigeki Nozawa in Tokyo at

To contact the editor responsible for this story: Rocky Swift at

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