Incoming BOJ Gov. Toshihiko Fukui vowed Tuesday to combat the nation’s persistent deflation, saying he wants to clear new paths for central bank funds to reach businesses.
He stopped short, however, of expressing support for adopting an inflation target, a tool some Liberal Democratic Party politicians have been clamoring for. Fukui’s comments came during an appearance before the House of Representatives Committee on Financial Affairs.
Kazumasa Iwata and Toshiro Muto, who will be Fukui’s two deputy governors, also attended the session.
“The Japanese economy is in an extremely severe situation, where one false step could send it over the brink into a deflationary spiral,” Fukui said. “I mean to risk all I have to bring the economy back on a recovery path.”
Fukui, who becomes BOJ governor Thursday, will begin his five-year term under immense political pressure.
Earlier Tuesday, as the broad Topix index of stocks remained slumped below 800, members of the Liberal Democratic Party drafted a set of requests to the BOJ, asking it to raise its promised purchases of stockholdings owned by hobbled banks from 2 trillion yen to 4 trillion yen.
“We mean to always act one step ahead of the private sector and even the government,” Fukui said. Dubbing the BOJ the “big boss” of financial services, he said he aims to “find channels for funds to reach those in the private sector who are cultivating new activities.”
The BOJ is pumping trillions of yen into banks by buying up their government bonds, but these funds continue to go around in circles as banks simply purchase more government bonds, he said.
“Supplying quantities of funds into the economy is not bringing about results. I am determined to garner public trust through new policies and foster the advantages of BOJ autonomy, rather than be passive in protecting BOJ independence.”
Any new policy Fukui embarks on is expected to differ from policies some politicians have been calling for, such as a commitment to raise prices to a specific level within a promised time frame.
Iwata advocates adopting such a policy, known as an inflation target, and shooting for hikes of between zero percent and 2 percent.
Fukui has remained cautious. “An inflation target is one of the extremely important tools that a central bank has,” he said, but added, “I would like to first clarify how funds from the central bank reach the economy.”
Today’s deflation is not solely a monetary phenomenon, he argued, as had departing Gov. Masaru Hayami. He cited a globalized economy, progress in information technology and drastic demographic changes.
“I will not ask the government to take action without first asking what the BOJ can do,” Fukui said, “but I mean to strongly push for measures to raise the synergistic effects of BOJ and government policies.”
Concerning questions about specific measures, Fukui said, “Please leave it to the central bank.”
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