Two years after unleashing record monetary stimulus, Bank of Japan Gov. Haruhiko Kuroda and his allies are confronting increasingly vocal opposition from the opponents of reflation who once dominated the policy debate.
Hundreds of economists filed in to a May 16 symposium on BOJ policy at a Japan Society of Monetary Economics semiannual gathering in Tokyo. Backers of Kuroda’s 2 percent inflation target squared off against advocates of monetary restraint, who say the BOJ’s bond purchases are delaying a crucial overhaul of public finances to deal with record debt.
“The discussion was heated,” Masahiko Takahashi, a professor at Yokohama National University who used to work at the central bank, said of the closed-door, two-hour session. “It’s been two years since the BOJ started QQE and there’s growing interest in the BOJ’s monetary policy and its effects,” he said, using the initials for Kuroda’s stimulus program.
Maintaining control of the public debate would help Kuroda avoid the kind of erosion of political support that affected his predecessor. Then-Gov. Masaaki Shirakawa was perceived to take policy steps under pressure from politicians and ended up leaving his post weeks early.
While the Kuroda board’s efforts have driven down the yen, boosted Japan’s stock market and helped revive growth in lending, continuing weakness in the broader economy has stoked unease among anti-reflationists. Their biggest concern: by keeping government bond yields low through record purchases, the central bank is enabling the government to avoid the fiscal tightening they say is necessary to avoid an eventual debt crisis.
“For a country with a huge government debt like Japan, aggressive monetary easing will loosen government discipline,” said Ryutaro Kono, the chief Japan economist at BNP Paribas SA, whose nomination to serve on the BOJ board in 2012 was rejected by lawmakers mobilizing for reflation.
Kono, who was one of two hard-money panel discussants at the Tokyo gathering, said that “an increase in long-term yields is the only way to stop the expansion of government spending,” but the mechanism doesn’t work given Kuroda’s stimulus.
So far, the anti-reflationists have failed to replicate the organized approach that saw the monetary expansionists go from the fringes of policymaking to the center in the aftermath of the March 11, 2011, earthquake and tsunami. During debates on how to respond to the disaster, reflationists were able to grab the attention of senior politicians, including then-backbencher Shinzo Abe in the then-opposition Liberal Democratic Party. Abe in 2012 assumed leadership of the LDP, then led it to electoral victory.
“Certainly they somehow succeeded in that strategy” of persuading lawmakers to back a more aggressive campaign against deflation, said Hideo Hayakawa, who was a BOJ executive director — the highest rank below the Policy Board — from 2009 to 2013. “We don’t have any sort of political movement,” he said in a March interview.
Hayakawa, who joined Kono in arguing against the BOJ’s current stance at the Tokyo symposium, said of his kindred economists that “sometimes they argue that maybe we need some kind of more political behavior.” For now, he said they are focused on promoting their views through newspaper opinion columns and academic journals.
“I am very much worrying about Japan’s fiscal health,” and the potential for a surge in borrowing costs when inflation accelerates, Hayakawa said. “Not necessarily many people are looking at that issue so we have to emphasize that.”
What’s making it tougher to garner political attention is a stock market rally that’s given at least parts of the public the impression that things are getting better under “Abenomics.” The Topix index of shares has soared 66 percent since Kuroda unveiled his asset-purchase program in April 2013.
“It’s difficult to oppose the BOJ’s monetary policy when the stock market is rising and the public supports Abenomics in general,” said Seki Obata, who served as a member of the investment committee of the government’s pension fund until April 2014 and is now a professor at Keio Business School.
Defenders of the BOJ’s stance say more time is needed to let monetary stimulus work.
Yutaka Harada, the BOJ’s newest board member, has argued that the central bank under Kuroda’s predecessors failed for two decades to address the nation’s tumble into stagnation. By comparison, the BOJ is now seeking to achieve its 2 percent inflation target in about two years. Harada and Yasuyuki Iida, who teaches at Meiji University in Tokyo, spoke for the reflationists at this month’s symposium.
So far, most lawmakers aren’t putting pressure on the BOJ. Taro Kono, a member of the Lower House and former candidate to lead the ruling LDP, says focus is more on whether there’s a need for additional fiscal stimulus. Kono himself said in an April interview that the BOJ had done enough by boosting stocks and correcting an excessively strong yen, and that it was time to start discussing an exit strategy.
“BOJ policy is making it painless for the government to borrow more money and discouraging the government from cutting spending,” Kono said.
Renewed declines in the yen could trigger greater unease about the BOJ’s approach. The currency, which on Thursday tumbled to a 12-year low against the dollar, has become an issue for importers and smaller companies that face higher costs without the benefit of export-earning gains.
“The only way to change the current policy framework is for the public to raise its voice and say ‘no more weak yen,'” said Yukio Noguchi, a former Finance Ministry official who is now an adviser at Waseda University’s Financial Research Institute in Tokyo.
Some members of the public may indeed be worried where things are heading. The No. 6 best-selling economics book on Amazon’s Japan website is “The End of Capitalism and the Crisis of History,” by Kazuo Mizuho. It argues that money-pumping will just cause asset bubbles that will burst and hurt jobs.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.