NAHA, OKINAWA – Now that the central bank has added negative rates to its record monetary stimulus program, it’s time for the Abe government to double down on reform efforts, said Deputy Gov. Hiroshi Nakaso.
“The Bank of Japan has taken monetary easing one step further,” Nakaso said in a speech in Okinawa on Thursday. “I expect the original third arrow of Abenomics, the growth strategy, to fly higher and faster.”
Nakaso’s comments come amid increasing concern that central banks around the world are reaching the limits of monetary policy and that governments need to shoulder a greater burden in building the foundations for economic revival. After more than three years of Abenomics, some of its early achievements — a weak yen, surging stocks and company profits — are being eroded as volatile global markets buffer economies around the world.
“In order to achieve sustainable economic growth, Japan’s economy inevitably should tackle the challenges to raising medium-term growth potential, on top of overcoming deflation,” Nakaso said.
Gross domestic product shrank an annualized 1.4 percent in the last three months of 2015. There have been five quarterly contractions since Prime Minister Shinzo Abe took office. At the same time, the BOJ is still far from its 2 percent inflation target, with consumer prices hovering around zero, mainly because of low oil costs.
The yen has strengthened the most among major currencies this year as demand for safe assets rose following uncertainty over the outlook for the global economy. Nakaso cautioned against becoming too concerned about market moves.
“Although global financial markets have been volatile since the turn of the year, I believe there is no need to be too pessimistic as the fundamentals of Japan’s economy have been firm,” he said.
The BOJ and the government made their roles clear for the economy in January 2013 in a joint statement. They said the BOJ would work to achieve 2 percent inflation while the government would be responsible for strengthening the economy that had stagnated for two decades.