Maradona Evoked in Kuroda Repelling Extra Easing Calls

Soccer legend Diego Maradona scored one of his most famous goals by taking the most direct route to his objective, wrong-footing defenders who expected him to alter course. Now, Bank of Japan Governor Haruhiko Kuroda is doing the same, an increasing number of economists say.

Maradona left five England players floundering as he ran in almost a straight line for the goal in Argentina’s 1986 victory, leading former Bank of England Governor Mervyn King to later say that monetary policy could work in a similar way.

A growing minority of analysts -- 24 percent in a Bloomberg News survey conducted June 3 to 6 -- say the BOJ won’t make any addition to the stimulus announced in April last year, up from 3 percent in December. The shift shows that more are being convinced that Kuroda won’t change tack after saying that, at least for now, the BOJ has done what’s necessary to help drive inflation toward a 2 percent goal.

“The Maradona theory fits perfectly well with what’s been happening,” said Hideo Kumano, executive chief economist at Dai-ichi Life Research Institute in Tokyo and a former central bank official. “Inflation is developing in line with the BOJ’s outlook, while economists have been forced to keep postponing their bets.”

Intended Effects

Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo, cited the Maradona parallel in a phone interview last month. JPMorgan is forecasting no additional easing.

All 33 economists in the Bloomberg survey forecast Kuroda and his board will keep policy unchanged at a two-day meeting ending June 13. Fifty-eight percent see BOJ action by the end of this year, dropping from 75 percent last month.

Kuroda said he was aiming for 2 percent inflation in about two years when he unveiled unprecedented easing in April 2013.

The BOJ buys the equivalent of about 70 percent of newly issued Japanese government bonds per month from the market as part of its stimulus that aims to boost the monetary base at a annual pace of between 60 trillion to 70 trillion yen ($684 billion).

The BOJ’s easing is having the intended effects, with inflation moving smoothly toward the BOJ’s target, Kuroda told lawmakers last week in parliament.

Core consumer prices rose 3.2 percent in April from the year-earlier month, when they registered a 0.4 percent decline. Stripping out the effects of April’s sales-tax increase, core inflation -- the central bank’s preferred gauge -- was at 1.5 percent, according to BOJ estimates. Inflation is likely to reach the BOJ’s goal sometime in the middle of its projection period through March 2017, Kuroda said last week.

Yen Climbs

The central bank forecasts core inflation will move around 1.25 percent for “some time” before accelerating on rising price expectations and a tightening labor market.

That outlook is too upbeat, said Yasuhide Yajima, chief economist at NLI Research Institute. The yen, whose 18 percent decline against the dollar last year helped to stoke inflation by boosting import costs, has gained 2.9 percent this year. The BOJ will have to add to easing to sustain momentum, he said.

“It’s undeniable economists have been wrong, and this is regrettable,” said Yajima. “Still, 2 percent inflation is too ambitious a target for the BOJ to achieve.”

While a majority of economists in the survey forecast further BOJ stimulus by the end of the year, analysts have kept pushing back their predictions after most originally saw extra easing as early as October last year.

Japan Center for Economic Research data indicate the BOJ has a better track record than the average economist in predicting price trends over the past year.

Mervyn King

In May 2013, economists forecast core consumer prices would rise 0.3 percent in the fiscal year that ended March 31, according to JCER. Around the same time, the BOJ projected a 0.7 percent gain -- closer to the actual 0.8 percent increase.

It wouldn’t be the first time Maradona has come up in discourse on central banks. King in a speech in 2005 compared his performance with the BOE’s steady policy, even as market forecasts swung between calls for rate increases and cuts.

“The truly remarkable thing, however, is that Maradona ran virtually in a straight line,” King said. “How can you beat five players by running in a straight line? The answer is that the English defenders reacted to what they expected Maradona to do. Because they expected Maradona to move either left or right, he was able to go straight on. Monetary policy works in a similar way.”

The World Cup soccer kicks off this week in Brazil. The host nation is the top choice to win the tournament, according to a survey of 171 economists across 52 countries by Bloomberg News published on June 10.

(Corrects percentage of economists forecasting extra easing this year in sixth paragraph of story originally published June 11.)
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