Haruhiko Kuroda has faced many challenges in his campaign to end Japan's deflation: traumatized households, cautious bankers, stingy CEOs and tepid global growth. But on Thursday, the Bank of Japan governor added a new item to the list: denial.
After announcing that the BOJ was leaving rates unchanged, Kuroda held a press conference that was a study in cognitive dissonance. Although his 2 percent inflation target looks less and less achievable, he continues to exude economic confidence. Here are five Bloomberg headlines suggesting Kuroda is beginning to part ways with Japan's economic reality.
*KURODA: DELAY IN REACHING 2% CPI IS DUE TO OIL PRICES
That's hardly the case. Japan's consumer prices are again trending below zero because of negligible wage growth and demographics. The country's largest exporters are benefiting from the yen's 30 percent drop, but are passing very little on to workers. For months, Japanese economists have been saying the country's tightening labor markets (unemployment is just 3.5 percent) would soon produce big wage gains. Lost in the discussion is why Japan is short on workers: a declining and aging population, a root cause that is actually deflationary. Blaming it all on commodity prices just won't cut it.
*KURODA: DON'T SEE THERE'S PROBLEM IN COMMUNICATION WITH MARKET
Really? That would sound less delusional if Kuroda stopped his doublespeak on quantitative easing. On the one hand, he says the BOJ won't hesitate to add fresh liquidity if needed (although it did just that yesterday). On the other, he's talking way too much about plotting exit strategies from the central bank's $700 billion-plus of annual bond purchases. So which is it? When Kuroda wonders why changing Japan's "deflationary mindset" is proving so difficult, he should look in the mirror.
*KURODA: STRONGLY EXPECTS GOVT TO KEEP WORKING ON FISCAL REFORM
Surely, Kuroda noticed that Fitch downgraded Japan to "A" from "A+" on Monday. Tokyo shares a credit rating with Malta precisely because Prime Minister Shinzo Abe has done nothing to stabilize the world's largest public debt. If anything, his policies have been a hindrance: The 3 percentage-point sales-tax hike he implemented in April 2014 tipped Japan into recession, setting back debt reduction. If Kuroda really thinks the government is implementing fiscal reforms he's reading the wrong newspapers.
*KURODA: DON'T THINK BOJ BOND PURCHASES WILL FACE PROBLEMS
Another delusional statement. Aside from the debt binge's many failures to date, Japan's financial markets are now struggling with a lack of liquidity. Major traders like Royal Bank of Scotland are beginning to leave Japan. And Japan's bizarrely low 10-year yields, which are currently at 0.32 percent also suggest something's amiss in the country's markets. It defies the basic tenets of economics for the nation with the largest total debt, largest ratio of geriatrics and low rates of immigration to have lower bond yields than countries like Singapore, Sweden or Switzerland.
*KURODA: STOCK PRICES REFLECT OUTLOOK FOR CORPORATE PROFITS
Kuroda unwittingly undermined his own hypothesis. The Nikkei 225 fell 2.7 percent yesterday to 19,520, not on any revelation about corporate profits, but on the news that the BOJ was deciding to stand pat on interest rates. Japanese stocks have been rising for two years, and all that has really changed in that time is the country's monetary policy. With Kuroda's cheap money driving up Nikkei shares, there's no denying that the market is running ahead of corporate fundamentals.
Kuroda's willful denial wouldn't matter so much if he weren't in such a position of influence. As is, it suggests he's in no hurry to correct the flaws of his anti-deflation push, by recalibrating, for example, the type and volume of assets the BOJ has been buying. Worse, he seems to have given up on efforts to nudge the government to get serious about structural reforms to enliven growth.
In all, it's a demonstration of monetary malpractice. If Kuroda is content with where Japan's economy is at the moment, he's not up to the challenge of leading the country's central bank.
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