Kuroda’s deputy calls for faster reforms


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.

  • GBR48

    Inflation is not inherently good and deflation is not inherently bad. Low growth is also more sustainable and manageable than the sort of high growth bubble that China have experienced and are now facing the fallout from.

    The financial sector might love high growth bubbles and inflation, but we should not pander to their needs or manipulate society to make them happy, when the consequences are so socially damaging.

    Deflation and a stagnant economy are two different things. All the deflation in the world won’t stop a sound business from making money, as long as it has customers and is well run. The creation of wealth here can be remarkable – note the recent profits accruing from Kumamon-branding.

    Inflation can, of course, help a badly run business to hide its incompetence and make money, which is good for all of those unreformed bits of Japan Inc., but Japan appears to be behaviourally deflationary.

    Where else in the world does a new property drop so much in value when you walk in the door? Where else are construction standards, quake-proofing aside, so poor, in the expectation that overpriced wooden properties, built with limited insulation, no central or under-floor heating and single-glazed windows, will be knocked down in a decade or two and rebuilt? Most inflationary economies are built on their property markets.

    Japan has too many shops for retail to be as lucrative as it could be, but everyone is OK with that, firms happily building giant new malls anywhere they can, endless konbini sucking the easy-profit lines from neighbouring stores.

    The service culture means more staff are employed than in the West, reducing profitability (and wages). Again, this seems to be accepted.

    At least there are many jobs for the low skilled or elderly, usually standing about with a brightly coloured stick directing traffic or pedestrians.

    There are benefits to this system, but it is open to abuse. If the rich are allowed to parasitise the poor without limits, the effects can be catastrophic.

    As far as government reforms go, the most poorly paid need a much higher wage, but despite ‘urging’ this, the government seem impotent to do anything about it. After years of corporates raking in profits from a stock bubble and currency manipulation, a slight dip even led some unions to forfeit requests for any pay increase – and that was in the banking sector, traditionally a snouts-in-the-trough environment.

    Reform would be good and is necessary, but the power balance between Japan Inc. and the LDP probably won’t permit it. Given the political donations of the corporate sector, the LDP are not likely to bite the hand that feeds it, even if Japan Inc. needs to reform for its own good. The LDP could push Japan Inc. much harder. It’s not like there is a viable threat from the political opposition. Perhaps they fear more ‘organised’ resistance to any increased demands for reform.

    A government does not need to spend so much of its time whoring its economy to the demands of international money markets. Perhaps instead of blowing vast amounts of public money trying to flip a naturally deflationary economy, the government should spend less time working for the greater glory of the financial markets, who will not love them back, and concentrate on social and welfare policies.

    The very wealthy, and specifically those engaged in the finance industry, will find ways to make money, with the ethics of rapists, as they always have. They do not require freebies from governments to maintain their wealth.

    The business of an elected government is its people – protecting those who are vulnerable and raising standards of education, employment, health and welfare with appropriate intervention, administration and regulation.

    Let the rich take care of themselves, and concentrate instead upon those in need.