NEW YORK – The bold monetary easing measures that have been adopted by the Bank of Japan to overcome deflation are “quite dangerous,” prominent U.S. investor George Soros said.
“What Japan is doing is actually quite dangerous because they are doing it after 25 years of just simply accumulating deficits and not getting the economy going,” the multibillionaire philanthropist said Friday in an interview with U.S. broadcaster CNBC.
“So if what they are doing gets something started, they may not be able to stop it,” Soros warned. “If the yen starts to fall, which it has done, and people in Japan realize that it is liable to continue and want to put their money abroad, then the fall may become like an avalanche.”
On Thursday, the BOJ announced an aggressive quantitative and qualitative monetary easing policy after wrapping up new BOJ Gov. Haruhiko Kuroda’s first policy meeting. The BOJ plans to double Japan’s monetary base and the bank’s government bond holdings in two years in a bid to stoke 2 percent inflation and push the country out of deflation.
“It is a sensation because he (Kuroda) broke some of the taboos of monetary policy,” Soros said, adding that “it is a very daring undertaking.”
“For 25 years, Japan was dying a slow death and now they wake up,” he added.
It’s only a quick fix: Fitch
Though the monetary easing of new Bank of Japan Gov. Haruhiko Kuroda may buy additional time to tackle the nation’s long-term economic and fiscal challenges, “the benefits will probably prove temporary” if these issues are left unaddressed, Fitch Ratings warned.
The Wall Street Journal also questioned whether Kuroda’s aggressive approach will succeed in driving economic growth, saying that “Japan’s recovery depends more on structural reform than monetary policy” and cautioning that the ruling Liberal Democratic Party represents segments of society that resist such change.
On Friday, Fitch said that “developing and implementing a credible fiscal strategy over the medium term and enacting structural reforms to raise the real economic growth rate remain central issues for Japan and its sovereign credit rating.”
“A lack of new fiscal policy measures aimed at stabilizing public finances amid further rises in general government debt ratios could lead to a downgrade,” the bond rating service said. Last May, Fitch downgraded Japan’s debt for the first time in nine years, cutting it to A-plus largely on ballooning public debt.
The WSJ pointed out that steps such as the BOJ buying bonds filter through “a normally functioning economy,” but that in a country such as Japan, caught in a deflationary spiral, banks already have plenty of money but firms continue to pay down debt and aren’t seeking to invest.
The newspaper cited Japan’s repeated easing attempts in the past decade but noted that it “never stuck with the policy long enough to work.” It added that “Kuroda’s effort should end that as an excuse.”
It also predicted the new BOJ monetary steps will have a negative effect on Japan’s neighbors as a result of the depreciating yen, which makes Japanese products more competitive, and with developing economies such as Thailand and Indonesia prone to asset bubbles.