Koichi Hamada, one of Prime Minister Shinzo Abe’s special advisers, on Friday condemned past governments led by the Democratic Party of Japan for not pressing the Bank of Japan to conduct enough monetary easing steps to fight the country’s prolonged deflation.
“The failure of those politicians in general was not bashing the BOJ like now, but not correcting the (BOJ’s) wrong policy for a long time,” Hamada, who is also professor emeritus of economics at Yale University, told reporters at the Foreign Correspondents’ Club of Japan in Tokyo.
He said journalists also did not understand that the country needs a certain level of inflation to pull the economy out of the long economic slump.
The comments follow Abe’s criticisms of the BOJ, particularly since he became a candidate to head the Liberal Democratic Party last September. The comments have already helped lift stock prices and ease the yen versus the dollar.
In a joint statement expected later this month to help shore up Japan’s recession-hit economy, Abe’s government is expected to set a medium-term inflation target of 2 percent with the BOJ.
But Hamada does not agree with unlimited monetary easing. “Always there is some possibility that inflationary pressure may sneak in,” he said.
Also, Hamada said he does not believe that fiscal steps are always necessary for economic recovery.
“What I’m worried about is that there are still some politicians who believe monetary policy does not have an effect without accompanying fiscal measures. I think a fiscal step is subordinate, which should be conducted after the BOJ fully eases the monetary grip,” he said, adding that a reflationary policy should also comply with structural reforms.
The economic adviser said there should be some amendment of the BOJ law so the central bank’s decision will be restrictive, he added.
In his recent book, “Amerika wa Nihonkeizai no Fukkatsu wo Shitteiru” (“How to Save the Japanese Economy”), Hamada criticized the BOJ’s lack of swift steps to fight the prolonged period of deflation Japan endured, and he deplored the fact that BOJ Gov. Masaaki Shirakawa did not fully understand his lectures when Shirakawa studied under him while he was a student at the University of Tokyo.
Shared goal ‘natural’
It is “natural” for the Bank of Japan and the government to share an inflation target, University of Tokyo professor Takatoshi Ito, a potential candidate to head the BOJ, said in a recent interview.
The central bank and the government are planning to issue a joint statement expected to specify a new inflation target.
Last February, the BOJ announced it was pursuing an annual inflation rate of 1 percent as a near-term price stability goal. Ito said the announcement failed to raise market expectations and the BOJ’s commitment to the goal has been unclear.
“It is important to design a solid framework that will include (monetary easing) steps, a deadline and a logic for meeting an inflation target,” he stressed.
Ito, 62, has emerged as a candidate to replace BOJ Gov. Masaaki Shirakawa, whose five-year term expires in April.
Ito said Prime Minister Shinzo Abe, who took office three weeks ago, is “right” to want to strengthen cooperation between the BOJ and the government.