Sun, Jul 24, 2016 page16

• Kuroda says further easing a possibility

  ‘HELICOPTER MONEY’: The governor of the Bank of Japan said history shows that the central bank directly underwriting government debt would be prohibited by law

  • Reuters, CHENGDU, China
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  Bank of Japan Governor Haruhiko Kuroda yesterday said he would ease policy further if necessary to achieve the central bank’s 2 percent inflation goal, while reiterating a commitment to continue with current stimulus until prices are anchored there.

  Speaking to reporters on the sidelines of a G20 meeting of finance ministers and central bankers in the southwestern Chinese city of Chengdu, Kuroda maintained an upbeat view on the Japanese economy and price outlook, despite rising market expectations for more monetary stimulus from the central bank.

  A majority of economists polled by Reuters expect the central bank to ease policy next week, forecasting a combination of measures in another attempt to kick-start inflation.

  “If the economy’s [recovery] trend continues, leading wages and prices to rise in a virtuous cycle, which is continuing, prices will eventually rise to the 2 percent price stability goal,” Kuroda said.

  “We always examine risk factors for the economy and prices and will take additional easing steps if necessary to achieve the price stability goal. I’ll explain that together with Japan’s economy, prices and monetary policy at this meeting,” he added.

  Kuroda went on to say that the major topic of G20 debate is how Britain’s vote to exit the EU would affect the global economy.

  “Uncertainty will continue, including negotiations between Britain and the EU, which will take years. So we will be paying attention to such things,” Kuroda said, adding that there was no change in expectations for global growth to rise, despite Brexit.

  The G20 economies are to reiterate their determination to use all policy tools, individually and collectively, to achieve their goal of strong, sustainable and balanced growth, according to a draft of the G20 communique seen by reporters yesterday.

  “We are making further progress towards the implementation of our growth strategies, as is indicated by the preliminary assessment of the international organizations as well as results from our enhanced peer reviews, but we also acknowledge that more needs to be done,” the draft said.

  “We reaffirm our previous exchange rate commitments, including that we will refrain from competitive devaluations and we will not target our exchange rates for competitive purposes. We will resist all forms of protectionism,” it said.

  Kuroda also shrugged off speculation about “helicopter money,” saying that it would be prohibited by law if it meant the central bank directly underwriting government debt.

  “If it means that central banks are directly underwriting government bonds, or managing monetary and fiscal policies as one, that would be prohibited in Japan, as well as other advanced economies, as lessons from history tell us,” he said.

  Japanese markets have risen this month on speculation that authorities, battling to revive an economy dogged by decades of anemic inflation, would resort to using helicopter money, possibly issuing perpetual bonds to underwrite public debt.

  “If governments utilize fiscal policy while central banks ease policy from the economic and price viewpoint, that would boost the multiplier effect on the economy. This so-called policy mix is nothing wrong as macro policy,” he added.
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