Kuroda's Monetary Program Turns Three: Charting the Results

It’s been three years since central bank governor Haruhiko Kuroda announced his plan to rid Japan of its "deflationary mindset" and put the economy on the road to growth through a bold program of asset purchases.

There’s not doubt he’s had an impact, especially on the currency and the markets for stocks and bonds.

Many things haven’t gone his way, and the Bank of Japan is still a long way from fostering a virtuous cycle in which higher corporate profits push up wages enough to spur robust consumer spending and ultimately a level of inflation that keeps the system spinning.

Here are five charts that track key developments in Kuroda’s quest for 2 percent price gains and a healthy economy.

Kuroda got off to a good start, with consumer prices steadily rising toward his goal until mid 2014, when oil prices tumbled. That sent shock waves through financial markets and pushed down inflation globally. Early hopes of achieving the price target in mid 2015 evaporated. The latest timetable -- which most private economists doubt -- is to hit 2 percent sometime around the six months starting April 2017.

The economy has grown about 5 percent since Prime Minister Shinzo Abe came to office in December 2012. That’s well short of many other major economies, but a lot better than the government that preceded Abe, which carried the burden of rebuilding after the 2011 earthquake and tsunami. Taking a standard quarterly measure of gross domestic product that accounts for inflation, a stop-go picture emerges over the past three years, with five periods of contraction.

The BOJ is expanding the monetary base at an annual rate of 80 trillion yen ($710 billion), mostly through the purchase of Japanese government bonds. It’s also buying exchange-traded funds, real-estate investment trusts, commercial paper and corporate bonds. In the process, the central bank’s balance sheet has grown to the equivalent of almost 80 percent of GDP. When the BOJ exits its program, how it does so, and at what cost, are all unanswered questions. In the meantime, investors in Japanese bonds are struggling to cope in a market where about 70 percent of yields have turned negative.

While Kuroda’s program specifically targets inflation, not the currency or stocks, the weaker yen and stronger share prices have been two of its key successes. Gains in the Topix index were a boon for national confidence while the depreciation of the yen improved the competitiveness of exporters and inflated the value of their overseas earning when converted back into yen. There’s been erosion of these benefits this year as global markets re-calibrate to a shift in U.S. monetary policy and the outlook for Japan becomes more uncertain. 

Company profits remain at a record high, even if the pace of the increase has slowed. Wages have been stagnant. Toyota Motor Corp., Japan’s biggest company, this year decided to pare a monthly base salary increase to 1,500 yen, from 4,000 yen. Meanwhile, Japan Post Holdings Co., one of its biggest public-sector employers, cited the BOJ’s negative interest rate policy for squelching calls for higher pay. Until a larger proportion of corporate earnings flow into wages, Kuroda’s hope for a virtuous cycle is likely to be elusive.

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