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2013年4月 6日 (土)


--The Asahi Shimbun, April 5
EDITORIAL: BOJ needs self-control in implementing bold easy money policy

The Bank of Japan under new Governor Haruhiko Kuroda on April 4 decided on a new monetary-easing policy as part of efforts to "do everything possible" to achieve a 2-percent annual inflation target in two years.

The BOJ has changed its policy indicator from an uncollateralized overnight call money rate to a monetary base, or the total amount of cash in circulation and commercial banks' reserves with the BOJ.
The central bank said "it will enter a new phase of monetary easing both in terms of quantity and quality."

By buying larger quantities of government bonds and other commodities, it plans to bolster the monetary base by 60 trillion yen to 70 trillion yen a year. By the end of 2014, the amount is expected to reach 270 trillion yen, nearly double the balance at the end of last year.

To achieve that goal, the BOJ removed some long-standing rules.

For example, long-term government bonds that it could buy were limited to those that would mature in three years or less. But that restriction has been lifted.

Moreover, the asset purchase program for monetary easing purposes will be absorbed into its bond purchases for ordinary monetary control operations. In addition, the BOJ decided to temporarily suspend the "banknote principle," a rule that sets the upper limit on the outstanding amount of government bonds it holds to the outstanding balance of banknotes issued.
As a result, the BOJ can now purchase an unlimited amount of government bonds.

It is true that in some respects, the past rules left the impression that the BOJ is passive about monetary relaxation.

However, the measures that were in place played a significant role in showing the central bank's policy of preventing government bond prices from nosediving by removing any suspicion that it was trying to finance government budget deficits.

This helped to prevent problems in everyday monetary control, which could consequently lead to wild fluctuations of long-term interest rates. Such a situation could easily arise if the BOJ makes excessive purchases of long-term government bonds.

We fear that the BOJ under Kuroda's leadership doesn't have any intention of coming up with new measures to prevent it from crossing the line.

The BOJ also has a responsibility to show how it will deal with difficulties that may arise in the future, such as rising interest rates.

In the past, however, even when the monetary base increased, deflation continued. This is because capital needs do not grow in the private sector unless there are attractive investment destinations.

Given such circumstances, excessive dependence on monetary easing alone could give rise to a distorted situation such as an asset price bubble and “bad inflation” caused by the weak yen that pushes up import prices.

The government has an important role to play by implementing drastic regulatory reform to improve the real economy. Wage increases and expanded employment will help achieve this goal.

As for Kuroda, he needs to prod the government and the private sector to make all-out efforts to secure fiscal discipline and forge ahead with reforms. Only then will the central bank's bold monetary-easing policy become the effective tool that it is intended to be.


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