Bank of Japan Gov. Haruhiko Kuroda has ruined his chances of getting a second full term, according to Nobuyuki Nakahara, who has advised the prime minister on the economy and was an intellectual father of the BOJ’s first run at quantitative easing in 2001.
The central bank’s switch to yield-curve targeting compounds its earlier error of adopting negative interest rates and is a disappointing move away from monetary-base expansion, Nakahara, 81, said in an interview on Friday.
In a stinging attack on the BOJ’s recent actions, he said the decision to conduct a comprehensive review of monetary policy had invited defeat to its reflationist efforts and would raise questions about Abenomics as a whole.
Prime Minister Shinzo Abe’s economic program consists of three so-called arrows: first, aggressive monetary policy, second, fiscal spending and third, structural reform. The central bank’s aggressive easing program, which began when Abe tapped Kuroda for the BOJ role in early 2013, has been the most prominent and highly debated aspect of Abenomics, second only to the missing structural reforms.
“They are trying to clean up the mess of negative rates. It’s impossible to do a stupid thing like keeping the yield curve under government control,” said Nakahara. “They changed the regime to rates from quantity, meaning those who support quantitative easing were defeated. The reflationists on the BOJ Policy Board lost. An exit from deflation is going to be far away.”
Kuroda insisted after the BOJ’s policy decision that it hadn’t reached the practical limits of its bond buying and wasn’t moving toward tapering. He has said the change strengthened the previous framework and increased the sustainability of the policy.
After being greeted with fanfare when he took the helm, Kuroda, 71, now faces a reversal of fortunes on multiple fronts. Markets have moved against him and critics are growing more vocal. The extended honeymoon he enjoyed with a rising stock market and falling yen are long gone and his 2 percent inflation goal is nowhere in sight.
Kuroda has less than 19 months to go in his term. While no BOJ governor has been tapped for a second five-year term since the 1960s, Kuroda’s central role in Abenomics has led to speculation that he may be different.
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