The Bank of Japan will do whatever it can to beat the plague of deflation, Bank of Japan Governor Haruhiko Kuroda said yesterday, adding that “half-baked” measures would only make the problem worse.
Just days after he took the markets by surprise with a massive enlargement of the Bank’s already-hefty stimulus programme, Kuroda said the path forward was clear.
“In order to completely overcome the chronic disease of deflation, medicine should be taken until the end,” Kuroda told private and public-sector officials in Tokyo. “A half-baked medical treatment will only worsen the symptoms.”
Photo: AFP
Japan’s economy, now the world’s third-largest, has suffered through more than a decade of deflation, a debilitating phenomenon that encourages consumers to put off purchases in the knowledge that things will be cheaper in the future.
That hurts producers, who cut back on wages or employment, further dampening demand in a self-reinforcing circle.
Kuroda’s comments came after the central bank said on Friday last week it would widen its asset-buying plan by as much as ￥20 trillion (US$182 billion) to an eye-popping ￥80 trillion annually.
The announcement sent the yen into freefall and lit a fire under stock prices. Yesterday, Japanese shares added 0.44 percent, or 74.85 points, to 16,937.32 in Tokyo trading, while the US dollar — which stood at ￥113.57 early yesterday in Tokyo — jumped to ￥114.30 in the afternoon, its highest since December 2007, and the euro was at ￥143.21, after being ￥142.61 earlier in the day.
The central bank chief has repeatedly said the program — dubbed quantitative and qualitative easing — is aimed at influencing people’s behavior by generating expectations that prices will rise in the future.
“Conversion of the deflationary mindset has been steadily progressing under the [policy]. Such progress should not be stopped now,” Kuroda said.
“A transition from a bad and shrinking equilibrium to a good and expanding equilibrium brings significant changes to Japan’s economic and social systems,” he said, repeating that now is a “critical moment” to achieve sustainable growth.
“The bank will do whatever it can to achieve the price stability target at the earliest possible time,” he said.
Kuroda has been bullish in his ambition to achieve 2 percent inflation in about two years from last year.
However, he failed to carry his full board with him last week, with only five of the nine members of the committee backing the expansion.
Critics say that monetary policy alone cannot overturn years of somnolence in Japan’s once hard-charging economy.
They insist that structural changes, including a relaxation of rigid labor laws, are necessary, and say the Japanese government must step up to the plate.
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