Kuroda Rebuts Reflation Naysayers as BOJ Action Looms: EconomyToru Fujioka and Mayumi Otsuma
Bank of Japan Governor Haruhiko Kuroda said he’s confident in achieving a 2 percent inflation target, rebutting doubters who predict his efforts will fail as he prepares to strengthen monetary stimulus.
“We will do whatever we can to achieve the 2 percent price target at the earliest time possible,” Kuroda said yesterday in his inaugural press conference after taking the helm of the BOJ this week. Kikuo Iwata, one of two new deputies, told reporters the bank should commit to achieving the goal for consumer-price increases within two years.
Kuroda’s anti-deflation campaign came under criticism even before it began, reflecting debate over whether monetary policy is capable of lifting Japan out of economic stagnation. Eisuke Sakakibara, an ex-Finance Ministry colleague of Kuroda’s, said he’d fail to achieve the price goal, and former BOJ board member Atsushi Mizuno said he’d hit a “wall of reality” because more bond purchases would escalate risks of a market bubble.
The new governor rebutted those views yesterday, saying that there’s no sign of an asset bubble, and restating that the BOJ could bring forward open-ended asset purchases, due to begin next year. Kuroda declined to comment on whether he would call an emergency meeting, before the gathering due for April 3-4. The yen gained on the absence of any extra commitments.
“Facing sky-high expectations, the BOJ will likely announce fresh easing measures at Kuroda’s first monetary policy meeting,” said HSBC Holdings Plc analyst Izumi Devalier in Hong Kong, forecasting bond buys and risk-asset purchases.
Devalier said that Kuroda may want to give Masayoshi Amamiya, the monetary policy planner brought back from running the bank’s Osaka branch, time to work on measures, rather than calling an immediate meeting.
The yen extended gains against the dollar after the briefing by Kuroda, Iwata and the other new deputy governor, Hiroshi Nakaso. The currency traded at 94.94 per dollar as of 1:12 p.m. in Tokyo today, little changed after a 1.2 percent increase yesterday. The 10-year government bond yield today hit the lowest since June 2003.
Opinions within the government are divided on the BOJ’s stimulus. Economy Minister Akira Amari said today that he hoped the price target will be achieved within two years, adding that the new central bank leadership has a good understanding of “Abenomics,” a term for Prime Minister Shinzo Abe’s policies. Finance Minister Taro Aso was more cautious, saying that it will take a “considerable” time to achieve the goal and the task doesn’t belong to the central bank alone.
Kuroda said he was confident that “decisive monetary easing” would lead to 2 percent inflation, adding that the nation’s biggest task is to end 15 years of deflation. His stance contrasted with that of former Governor Masaaki Shirakawa, who cautioned at his first press conference in 2008 that too much short-term stimulus could hurt long-term growth.
Consumer-price gains “will never reach 2 percent,” Sakakibara, Kuroda’s direct predecessor as vice finance minister in charge of currency policy in the 1990s, said in a Bloomberg Television interview last week. “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.”
Former board member Mizuno, vice chairman at Credit Suisse AG in Tokyo, said March 6 that excessive Japanese government bond purchases by the central bank could lead to a bubble in the securities.
Obstacles to efforts by Kuroda and Abe to revive the economy include an aging population, the world’s biggest government debt burden, and restrictions on labor-market flexibility. Japan yesterday reported its longest run of trade deficits in three decades as exports fell in February and import costs rose on a weaker yen and an extra reliance on fossil fuels because of nuclear-plant shutdowns.
“We must attain the price goal within two years,” Iwata said yesterday.
The confidence of the new policy makers is yet to be reflected by economists, who predict a failure to achieve the price target within two years, according to a Bloomberg News survey this month.
The central bank currently buys government bonds with maturities of up to three years, as well as exchange-traded funds, real-estate investment trusts and other risk assets, through a fund targeted to reach 76 trillion yen ($801 billion) by the end of this year.
Elsewhere in Asia today, Bank of Korea Governor Kim Choong Soo said that central bankers globally are concerned at the risks associated with keeping interest rates low for too long, adding that policy makers need to fuel recovery while staying on guard for possible bubbles in the long term.
Around the world, Germany is set to announce business confidence data today, while Cypriot lawmakers will begin debating legislation to unlock bailout funds and prevent a financial collapse. Euro-area finance ministers say they expect a new proposal from Cyprus “as rapidly as possible” on how the government plans to raise the 5.8 billion euros ($7.5 billion) needed to trigger emergency loans.