Kuroda vows end to deflation


The Bank of Japan will do what is necessary to defeat deflation, BOJ Gov. Haruhiko Kuroda said, declining to discuss specific additional measures it might take.

The central bank’s asset-purchase program has “been exerting its intended effect, which is quite encouraging,” Kuroda said at the Council on Foreign Relations in New York on Thursday. “By continuing to pursue” this policy, he said, “we are convinced that we will definitely overcome deflation.”

The benchmark Nikkei 225 stock average has gained 37 percent this year through Thursday as the weakening yen helped boost profits of exporters from Toyota Motor Corp. to Sony Corp.

“The economy is on track,” Kuroda said. “The real economy, prices and expectations — all of them are improving as we intended.” Kuroda said he expects wages to start to rise next year, and an increase in the consumption tax to 8 percent starting in April won’t hamper growth.

It would be “premature” to speculate what additional stimulus steps the BOJ could take if the economy falters, he said.

“At this stage, the economy is on track and everything is going on as we intended, so I don’t think it’s appropriate for me” to speculate, he said.

Kuroda said the BOJ’s policies aren’t aimed at weakening the yen and are trying to boost the domestic economy.

“We do not target exchange rates,” he said.

Data this month have indicated the economy is continuing to recover, with sentiment among large manufacturers at the highest level since December 2007 and machinery orders, an indicator for capital spending, jumping to the highest since the collapse of Lehman Brothers Holdings Inc. in 2008.

Positive developments are spreading in the economy and financial markets and expectations are turning favorable, Kuroda said Oct. 4 after the BOJ kept monetary policy unchanged.

The bank has promised to double the monetary base, a gauge of the money supply, by the end of next year in a bid to log 2 percent inflation in two years.

Kuroda said the BOJ’s policies are aimed at increasing inflation expectations.

“Prolonged deflation” has led to “persistent deflation expectations,” Kuroda said Friday. “It is natural for prices not to increase” when those expectations have “become entrenched.”

Core consumer prices, which exclude fresh food, rose 0.8 percent in August, the largest increase since November 2008. Kuroda said Japanese bond yields may “eventually” climb if policymakers are able to boost expectations for price increases.

  • The problem is not ‘deflation’. They are treating the ‘symptoms’ not the cause. Deflation is actually good if you have a ‘hard’, non-debasing currency. These are straw arguments. In another decade or two, they will want to curtail inflation. Its not a question of moderation, but causation. Deflation is ‘falling prices’. Wealth creation or rising purchasing powers is achieved by falling prices or rising incomes, or both. Its good. The problem is that have to date failed to address the high cost of living because of restrictive immigration and high levels of regulation. The reason they want to stop deflation is that they are favouring another ‘tide of monetary illusion’. i.e. Plausibly another lost decade of no reform, or perhaps they just want to ‘reform whilst you are enjoying the illusion’. It seems somewhere along the trail, the ‘reform discipline’ gets lost, and the electorate loses out.