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2016年4月 7日 (木)

異次元緩和3年 限界認め、軌道修正を

--The Asahi Shimbun, April 5
EDITORIAL: BOJ should reconsider aggressive easing policy three years after its implementation
(社説)異次元緩和3年 限界認め、軌道修正を
Three long years have passed since the Bank of Japan, under the leadership of Governor Haruhiko Kuroda, launched its “different dimension” policy of aggressive monetary expansion.

The new program started as a short-term, turbocharged effort to achieve the central bank’s policy goals within two years. The deadline passed and another full year has gone by, but the central bank has yet to hit its inflation target of 2 percent.

While the BOJ has repeatedly pushed back the target date, negative effects of the radical monetary easing policy have started making themselves felt. The risks it poses to Japan’s overall economic health are steadily growing.

The BOJ should now change tack instead of enhancing and expanding this risky approach.

Prime Minister Shinzo Abe’s pro-growth economic policy, known as Abenomics, is composed of three “arrows,” or key components. They are bold monetary easing, flexible fiscal spending and a growth strategy designed to stimulate private-sector investment.

The Abe administration has unveiled “new three arrows” focused on measures to support nursing care and child care. But the basic framework of its economic policy agenda has remained unchanged.

The second and third arrows of Abe's original blueprint are nothing new. Most of his predecessors tried to boost the economy through fiscal stimulus packages comprising massive government spending and new plans to put the economy on an upward trajectory.

The first arrow, the extraordinary program to expand the money supply, is the unique feature of Abenomics that constitutes its core.

Under this program, the BOJ buys huge amounts of government bonds to flood the economy with liquidity and thereby guides long-term interest rates to historically low levels.

Abe selected Kuroda as the central bank chief to preside over such unprecedented monetary expansion. This move, made under the slogan of “escape from deflation,” is aimed at putting the onus solely on the central bank’s monetary policy, which doesn’t impose a new financial burden on the public immediately.


Initially, many economists praised Abenomics as a successful policy effort because it led to a weaker yen and higher stock prices. As a result, Japanese companies, especially export-oriented manufacturers, notched record earnings, which translated into pay growth, to a certain extent.

But the benefits of Abenomics were overestimated in a sense. When the Abe administration was inaugurated at the end of 2012, the yen had already started falling against the dollar and the euro, which had strengthened due to recovery of the U.S. economy and the defused debt crisis in Europe.

The upturn of the global economy was setting the stage for a stock market rally. Abenomics mainly served as a catalyst that caused these factors to start kicking in.

Many economists point out that Abenomics has produced far fewer benefits for small and midsize businesses and most workers than the gains enjoyed by large companies and well-to-do individual investors.

The policy has failed to produce so-called “trickle-down effects,” which mean increased wealth in one sector of the economy produces benefits for other sectors as well. Japanese people’s real income has barely grown.

Japan’s real economic growth in the past three years has been by and large slower than during the previous government led by the then-Democratic Party of Japan. Abe’s economic policy program has not given any big boost to the real economy in terms of growth in consumer spending or business investment.

When the BOJ made another radical move to ramp up the money supply in February by introducing negative interest rates for part of commercial banks’ reserves at the central bank, the unwanted side effects became more pronounced.

Due partly to deteriorating economic conditions in many other countries, Japan’s stock and currency markets have been fluctuating wildly since then.

The negative interest rate policy has hit the earnings of financial institutions by reducing their profit margins and cast a pall over the long-term prospects of pension funds management.


Still, the BOJ has remained optimistic about the effectiveness of its monetary policy. It has kept claiming it can achieve the inflation target since it still has abundant policy options to use.

Last year, speaking at an international conference, Kuroda referred to a passage in the story of Peter Pan saying, “The moment you doubt whether you can fly, you cease forever to be able to do it,” and said, “Yes, what we need is a positive attitude and conviction.”

His “different dimension” monetary policy plays on people’s expectations. The idea is that if the BOJ sets a specific inflation target and promises to take every possible step to achieve it both businesses and consumers will start spending their money because of their inflationary expectations.

In fact, however, the inflation rate has remained around zero due partly to lower prices of oil and other energy resources. The BOJ’s policy has not awakened inflationary expectations.

The BOJ seems to have avoided admitting this fact because of concerns about dousing expectations for rising prices. If so, the central bank has gotten caught in a trap it has created itself.

The BOJ already owns more than 30 percent of the government bonds outstanding, and this rate will keep rising.

If the central bank starts financing the government’s debt through its bond-purchasing program, fiscal discipline could collapse, triggering tumbles of government bond prices and the yen’s value.

The longer the BOJ continues prolonging and expanding its aggressive monetary policy, the bigger the risk for the Japanese economy.

The central banks, including the BOJ, are guaranteed independence from the governments of their countries to ensure that they will not serve as policy tools of the governments. If they allow their actions to be dictated by the government, the public will have to pay the price for their distorted and misguided monetary policies.

The BOJ should ask itself whether it is acting as an agent for the government.


The Abe administration has started considering additional measures to stoke economic growth, including a supplementary budget. There are also rumors that the administration is considering another postponement of the scheduled hike of the consumption tax rate to 10 percent.

The government would be acting in a grossly irresponsible manner if it takes such fiscal policy measures that apparently assume that the BOJ will continue purchasing government bonds.

The government needs to start taking steps to restore a healthy and sustainable fiscal policy with an eye to future generations.

At the same time, the government should tackle structural reforms to ensure economic growth driven by private-sector investment and consumption. These are what the administration should do.

To prompt the government to embark on such sound policy efforts, the BOJ needs to explain the limitations of the effects of its radical monetary policy more clearly and in more detail to the administration.

That would be a good first step toward correcting problems with its policy stance, which is excessively biased toward monetary easing.


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