The Bank of Japan's latest move apparently aims to avoid clarifying when deflation will likely end, thereby increasing the degree of latitude it has to implement monetary policies. This can be described as a realistic judgment.
The central bank has held its first Monetary Policy Meeting since Gov. Haruhiko Kuroda was reappointed to his position and its two deputy governors were replaced with new appointees. References to the target year for the goal of achieving an annual inflation rate of 2 percent, previously set at "around fiscal 2019," were deleted from documents stating the outlook for economic trends.
At a press conference, Kuroda emphasized his intention to strive for an end to deflation without deciding when the target will likely be accomplished. "It cannot be described as appropriate that an excessive degree of attention is solely drawn to a number [regarding the target year]," he said.
After Kuroda was named to the central bank's top position in 2013, the bank initially announced a policy of achieving a 2 percent inflation rate in two years. However, protracted sluggishness in prices has forced the central bank to postpone the target year as frequently as six times.
The deletion of the target year can also be viewed as an attempt to avert a situation in which repeating promises that cannot be kept would undermine confidence in the central bank.
The current rate of increase in consumer prices stands at 0.9 percent, a far cry from the target figure.
At a hearing on his policies at the House of Representatives in March, Deputy Gov. Masazumi Wakatabe clearly said, "If it's difficult to achieve the 2 percent goal, additional monetary easing will be proposed." If the central bank had continued to mention the goal of achieving the target "around fiscal 2019," it would have inevitably fueled speculation about additional monetary relaxation in the market.
Support capital investment
The so-called "different-dimension" monetary-easing policy adopted under Gov. Kuroda has been kept in place for more than five years, and if the easy money policy is further reinforced, it could cause greater adverse effects.
Commercial banks' lending rates have declined, a development that is weighing on their earnings. Some have said a reduction in the banks' profit margins is causing delays in extending new loans, and that the situation is rather ruining the effectiveness of monetary relaxation.
The central bank's continued purchase of an exchange-traded fund (ETF), worth 6 trillion yen annually, as well as its massive purchases of government bonds, which account for 40 percent of the total issuance in value, is straining the market's functions in certain respects.
What is needed now is readiness to calmly assess the advantages and disadvantages accrued from large-scale monetary relaxation and to flexibly consider implementing necessary policies. Needless to say, a hasty shift to a tight-money policy should be strictly avoided.
The United States and European nations adopted a goal of achieving an inflation rate of 2 percent or so, a level comparable to that set by the Bank of Japan, but they are already setting out to look for an exit-from-relaxation strategy even before accomplishing their targets.
The U.S. Federal Reserve Board has indicated a pace at which to increase interest rates in the following few years and a road map for a reduction in quantitative easing, and the Fed is seeking careful dialogue with the market. This is an important approach.
Given that there is a limit to how far the Bank of Japan's monetary policy can be eased, the government will have an even more important role to play in achieving sustainable economic growth.
Efforts should be made to accelerate deregulation as a means of supporting corporations' capital investments and to improve productivity through successful work-style reform efforts. It is hoped that these measures will help facilitate a virtuous cycle in which expanded consumption will shore up production.
(From The Yomiuri Shimbun, April 30, 2018)
Read more from The Japan News at https://japannews.yomiuri.co.jp/
