Kuroda defends his major policy shakeup

Now isn't the time to follow old playbook, new BOJ chief says


Staff Writer

The impact of the dramatic monetary policies adopted last week by the Bank of Japan was “within expectations,” but the bank will keep a close watch on markets, BOJ Gov. Haruhiko Kuroda said Wednesday.

Speaking during a joint interview with The Japan Times and other media outlets, Kuroda reiterated that the policies revealed on April 4 were “considerably different from previous easing” by the BOJ and that it may take a while for the ripples to calm.

The former Asia Development Bank chief has become the man of the hour after his quantitative and qualitative easing caused a quick depreciation of the yen and stocks to soar.

He announced April 4 that the BOJ will purchase ¥7 trillion in bonds per month, including bonds of longer durations, in addition to assets that come with higher risks. That would double the monetary base and amounts outstanding of Japanese government bonds.

Taking the stage after strong criticism was lodged against his cautious predecessor, Masaaki Shirakawa, Kuroda was expected to put forward some bold new measures. But the aggressive easing he revealed exceeded market expectations and the dollar has surged above the ¥99 line for the first time in nearly four years.

“We are hoping that the economy will improve with a good balance,” Kuroda said.

The governor’s ultimate goal, he states over and over, is to hit the 2 percent inflation target within two years. But some of the drastic changes he revealed last week, including suspending the BOJ’s “bank note principle,” which caps the amount of long-term bonds in the BOJ’s possession to less than the outstanding balance of bank notes in circulation, are risky.

On this, Kuroda said there’s no point following the rules as the economy dips deeper into deflation. He said he isn’t considering creating a new set of rules at this point, but noted that the suspension is “temporary” and that once the inflation target is met the old principles may be reapplied.

Meanwhile, some pundits point out that Kuroda’s ultra-easing of monetary policy could be taken as the BOJ financing the debt-ridden government. Overseas economies affected by the sudden easing of the yen also claim the BOJ is trying to intervene in the exchange market.

On such claims, Kuroda, whose overseas experience was one of the reasons he was chosen as BOJ governor, said he will make necessary explanations to his foreign counterparts, including at a Group of 20 meeting next week in Washington.

Monetary easing is not a means to finance the government or to weaken the yen against other currencies, but “a way to stabilize Japan’s consumer prices,” Kuroda said.

He declined to discuss an appropriate range of the yen against the dollar but said Finance Minister Taro Aso’s recent comment “the yen’s excessive strength is merely being corrected” has merit.

However, he allowed he is concerned about the bloated government deficit, saying that a situation in which public debt exceeds 200 percent of GDP “is not sustainable.”

The government must achieve a primary balance surplus and work on cutting down the deficit, as committed to in an agreement signed with the BOJ in January, Kuroda said.

BOJ ‘still independent’


The Bank of Japan’s independence is still intact even though its recent monetary actions are following the government-sought line, an International Monetary Fund economist has said.

John Simon, senior economist in the IMF’s research department, said at a news conference Tuesday that “operational independence” is more important than “target independence.”

The BOJ “has full freedom to pursue, operationally, the target it has,” Simon said.

To achieve its 2 percent inflation target, the BOJ adopted a new monetary policy scheme last week that makes the monetary base the main target for its money market operations.

  • montaigne1

    The BOJ has full freedom as long as it follows what Abe and Aso want.

  • junia

    “I’s raining yen, alleluia!” (ilsole24ore) A rush for puchasing US or EURO bonds. (Bloomberg) Impoverishing Japanese citizens. (Martin Wolf, FT) How do you think?