Good News Is No Longer Unspeakable in Japan
The Bank of Japan is crossing an important threshold. It's about time.
Once off limits, Japan's eventual exit from ultra-loose monetary policy is now a public topic for Governor Haruhiko Kuroda. In testimony to the Japanese parliament this week, he said there are internal discussions on how to begin to withdraw from the bond buying that's kept interest rates around zero. He alluded to the concept of exit last month, also in parliament.
There are stacks of caveats. It's too soon for Kuroda to reveal the content of the discussions, he stressed. And it's certainly way too soon to start the exit: While Japan's economy is doing pretty well and prices are no longer declining, inflation is far from the BOJ's 2 percent goal. Heading for the doors now would be a mistake.
But to focus on the qualifiers is to miss the point. What was once forbidden is now permissible. This should mean that policy makers can now talk about the things that are going right for Japan's economy.
After all, every other Group of Seven central bank either has raised rates, as in the case of the Federal Reserve, Bank of England and Bank of Canada, or is in the process of unwinding quantitative easing, like the European Central Bank.
Until very recently, Japanese officials have been afraid to acknowledge progress, for fear that investors would assume stimulus was coming to an end. That assumption would push the yen higher, the idea went, and make 2 percent inflation tougher to reach. (The yen is bit higher anyway, up about 0.8 percent against the dollar in the past month.)
They clearly are still a bit afraid. Kuroda's remarks in parliament had to be prized out of him by a lawmaker. In separate testimony last month, Kuroda said that, based on the assumption that inflation would hit 2 percent in 2019, it's reasonable to consider thinking about and discussing an exit then. The BOJ rushed out a clarification: We didn't say we would actually exit in 2019! There is extreme sensitivity.
It's true that Japan isn't as far along the recovery path as, say, the Fed. Regardless it doesn't make much sense to keep mum and just hope the subject of ending stimulus will go away. It's not too soon to begin outlining circumstances under Japan could begin dismantling the panoply of easing tools. The BOJ does way more than just buy bonds. It also sucks up exchange-traded funds and real-estate investment trusts.
As I wrote in February, stonewalling was putting the BOJ into a trap of its own making. Silence left a vacuum for investors to speculate about what the future looked like. They still don't have much of an idea.
Now that Kuroda is starting his second term, it's a perfect opportunity to shed some more light. Begin with an internal review. Put incoming deputy governor Masayoshi Amamiya in charge of it. He knows how all the machinery works and how to get from Point A to Point B.
Now that it's not forbidden, let's keep the conversation going.
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