politics

BOJ chief defends inflation target

22 Comments
By Leika Kihara

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“The BOJ won’t respond to oil price moves themselves but will closely monitor how they affect inflation expectations,” Kuroda said in a news conference on Friday, signaling his resolve to ease policy again on any signs of change in trend inflation.

IMo this quote shows the lunancy of Kurado and his policy. Infaltion is only truly helpful if it is caused by true domestic demand -- the old "too much money chasing too few goods". Playing with the monetary policy, based on factors that Japan cannot control, like the price of oil, and that have nothing to do with Japanese domestic consumption is pure folly. Does that mean that if oil drops any more, they'll want other prices, like food, to go up by more than 2% to hit the 2% target? How in the world does that make any sense for the average Japanese household?

2 ( +6 / -4 )

Once again, Kuroda shows that he has zero understanding of how a modern economy functions. Wanting to have inflation because he thinks that will create economic activity is bad enough, and shows that he can't distinguish between cause and effect. But to then want the government to run a surplus, which is simply the government taking more money out of the economy than it injects into it, at the same time that he wants to create this inflation is insane. If Japan is foolish enough to follow this path more recessions and deflation are guaranteed, it is a mathematical certainty. Kuroda thinks Japan should pursue two mutually incompatible goals that logically can not both happen. He also thinks the totally meaningless debt to GDP matters (it doesn't) and so proposes policies that will INCREASE it, not decrease it. Can't get much more stupid than that.

4 ( +6 / -2 )

if oil drops any more, they'll want other prices, like food, to go up by more than 2% to hit the 2% target?

Food is not included in the 2% target.

-8 ( +1 / -9 )

Food is not included in the 2% target.

tina -- actually, only "fresh" food is excluded, since it tends to have wide fluctuations.

7 ( +10 / -3 )

To get rid of Kuroda, people must first get rid of Abe, who more or less handpicked him for the job.

4 ( +4 / -0 )

"Japan’s tattered finances"

Argentina has "tattered finances." Japan does not. If it did, the excrement would have impacted the rotary cooling device long ago.

-4 ( +2 / -6 )

Kuroda and Abe make a fine time -- neither of them are able to admit in the slightest that they were or are wrong. Never Kuroda's fault, for that matter -- always the fault of Japan and of the government that his wild predictions aren't met after his careless and dangerous use of the tax-payer's money. Never his fault at all.

4 ( +5 / -1 )

One word: Butter

0 ( +2 / -2 )

Since inflation plays a key role in the GDP of an economy, only a significant increase in family incomes will encourage expenditure on goods and services, and increase tax revenue returns to achieve a primary budget surplus in the timescale.

J Economy is like a locomotive hurling towards a broken rail in the guise of consumption tax rate increase 1st quarter 2017.

Only a fundamental and structural programme can prevent tax revenues decreasing and social security costs rising. Former finance ministry bureaucrat Kuroda, is in danger of appearing like a modern day Nero fiddling whilst Rome burned. I am afraid events are catching up with economic reality for finance ministries globally.

BOJ Kuroda must bite the bullet and challenge the government to fast track promised 3rd arrow reforms. All the arithmetic reasoning and solution is at Kuroda disposal detailed below.......

http://www.stat.go.jp/english/data/chouki/20.htm

2 ( +3 / -1 )

It's already been two years since these guys took over. And what has happened in that period of time? Higher prices, higher consumption tax ... and zero increase in pocket money.

And they keep saying things will improve over time. If things do improve, they probably won't do it on their watch ...

1 ( +1 / -0 )

BOJ Kuroda must bite the bullet and challenge the government to fast track promised 3rd arrow reforms.

BOJ must be neutral and shouldn't exceed its authority.

-1 ( +1 / -2 )

Hi TW, BOJ neutrality is upheld whilst presenting relevant monetary policy Abe San advocated clearly as far back his keynote OECD Ministerial Council Meeting May 6th 2014.

http://japan.kantei.go.jp/96_abe/statement/201405/oecd.html J households are consummate savers to balance family budgets which is prevalent within the structural forecast for consolidation of tax revenue. Banks will religiously paw and peel back the underlying trend analysis from MofF Stats before advising business clients. A framework for reform needs to be hastily compiled in conjuction and support of the BOJ, Abe Sans very own policy. It makes sound economic sense, J economy has wiggle room aforded to sound employment figures but not indefinitely.

1 ( +1 / -0 )

Kurodanomics /Abenomics bites the big one. I don't need any more inflation to squeeze my budget any more.

0 ( +1 / -1 )

Hi Itso, Still BOJ shouldn't challenge the government. The govt has many things to worry about besides monetary policy.

-2 ( +1 / -3 )

The academics say Japan should instead focus on reducing the debt-to-GDP ratio. Critics say this would allow lawmakers to call for fiscal stimulus and avoid unpopular spending cuts.

Gee. To believe the academics or not? Tough one.

If fiscal stimulus were ever going to have worked, you'd think it would have sometime during the last quarter of a century, since when Japan's debt-to-GDP was less than 75% versus more than 225% today.

to then want the government to run a surplus, which is simply the government taking more money out of the economy than it injects into it, at the same time that he wants to create this inflation is insane.

This is the position a government finds itself in after pursuing insane fiscal stimulus policies for a quarter of a century.

If Japan is foolish enough to follow this path more recessions and deflation are guaranteed

The last quarter of a century of shrinking nominal GDP hasn't been a picnic either. It's folly to imagine there is an easy way out of the hole. There is only a hard way, but the sooner they get started, the sooner things will start to look better. No one likes to take bad tasting medicine, that doesn't mean it's better not to take it.

3 ( +3 / -0 )

Inflation is just a mechanism to take from lenders/savers and give to borrowers. In Japan right now, that's a good thing.

-1 ( +0 / -1 )

If fiscal stimulus were ever going to have worked, you'd think it would have sometime during the last quarter of a century, since when Japan's debt-to-GDP was less than 75% versus more than 225% today.

Oh my, where to start... Once again, somebody thinks the way to fix an economy is to REMOVE THE MONEY!!! Japan's "debt" is EXACTLY equal to the net amount of money held by the private sector. Basic logic and arithmetic. If that amount has been rising, it is a symptom and not a cause of problems. Money is being hoarded and not circulating in the real economy (the problem), and so more and more must be issued just to stay in the same place. It has nothing to do with stimulus "working" or not, stimulus is just a band-aid while they refuse to deal with the root causes of problem, which are income distribution and velocity of money. And that is the same issue in every single country, as the post-1971 economic "system" has now hit its limit everywhere. The only country-specific issue that is valid for Japan is the question of why the process played out so much faster in Japan and who was responsible for that. Otherwise, despite the constant whining and hysteria of the Japan Doomer crowd, there is nothing unique about the Japan situation, the exact same situation (or worse) is now happening everywhere. As for the debt-to-GDP ratio it is a meaningless figure for a currency issuing government. It could be a 1 billion % and except for inflation it would still be irrelevant. Anybody who doesn't understand that understands nothing.

-2 ( +1 / -3 )

Kuroda's great gamble is that he can effectively change much of Japan's interest-bearing fixed maturity obligations into zero coupon perpetual notes without causing the market for the perpetuals to collapse. Time will tell if he's right. Nowhere else has ever done this successfully, but Japan is better circumstanced to attempt it than any sovereign I can remember.

0 ( +0 / -0 )

stimulus is just a band-aid while they refuse to deal with the root causes of problem

If only the "stimulus" were just a mere band-aid.

Unfortunately the humongous accumulated debt is now a dark, dark cloud hanging over the economy, creating fear about the future amongst the public, and thus chilling demand. The key point is that whether one agrees with the reasoning behind these fears or not is largely irrelevant - that the fears exist is just the simple reality.

As a result, for any boost that the "stimulus" provides to some parts of the economy, the economy as a whole suffers because of it - it is counter-productive. An unintended consequence of well-intentioned policy.

It could be a 1 billion % and except for inflation it would still be irrelevant.

Yeah. It's not like inflation would count for anything.

2 ( +3 / -1 )

Unfortunately the humongous accumulated debt is now a dark, dark cloud hanging over the economy, creating fear about the future amongst the public, and thus chilling demand

Let's keep this really, really simple. Japan does not have a "humongous" debt. It has a money supply made up of money issued when the government spends and credit issued by the commercial banks. The net financial assets of the public (aka private sector) equal government spending minus private sector liabilities to banks, to the EXACT LAST YEN. This "debt" does not "chill" demand. Demand is too low because money is hoarded and does not circulate in the economy. And even if this "fear" was causing people to not spend, so what? On one hand the Doomers claim Japan is doomed because people are not spending. Then they turn around and claim Japan is doomed because people are not saving and this will CAUSE A CATASTROPHIC BOND MARKET COLLAPSE. Cognitive dissonance on steroids.

How any of this stuff, which to understand requires no more than about a kindergarten level education, can be a mystery in the 21st century blows the mind.

-3 ( +1 / -4 )

Japan does not have a "humongous" debt.

What you (or I) think/claim is irrelevant. The simple reality is lots of people in Japan think (regardless of the merits of the view) that the debt is indeed humongous.

And even if this "fear" was causing people to not spend, so what? On one hand the Doomers claim Japan is doomed because people are not spending. Then they turn around and claim Japan is doomed because people are not saving and this will CAUSE A CATASTROPHIC BOND MARKET COLLAPSE. Cognitive dissonance on steroids.

People not spending freely doesn't doom Japan but it keeps it slogging through the mud at best. You would believe that the debt can be accumulated indefinitely without negative consequences, and even if you were right in theory, this is the real world, not a textbook. Should some nutcase politician who thinks the debt is a problem become the finance or prime minister, and do something about it... "boom". No one can discount politicians doing anything.

How any of this stuff, which to understand requires no more than about a kindergarten level education, can be a mystery in the 21st century blows the mind.

Come on, you can bring yourself above that level of comment.

As an aside, I think it's interesting that Estonia has been clocking rates of growth of more than 3% in recent years, despite its government issuing hardly any debt at all (apparently it hasn't for years). Estonia's performance is in stark contrast to fellow minnow Eurozoner, Greece.

0 ( +1 / -1 )

Let's keep this really, really simple. Japan does not have a "humongous" debt. It has a money supply made up of money issued when the government spends and credit issued by the commercial banks.

Wrong, it is debt. The government is creating "assets" which it is selling to itself, as the commercial banks are now shunning these assets, and are reducing their holdings of them. These assets are transmitted in the form of bonds, and bonds are debt. Issuing bonds to finance government spending is also known as issuing debt. The government must pay interest on these bonds, just as you or I have to pay interest on our own debts.

If the government could simply issue currency to pay for it's operation, why would it bother to sell bonds and pay interest upon them? As it is, the interest on JGB debt now consumes 26% of all tax revenue collected by the government, is this not true?

And even if this "fear" was causing people to not spend, so what? On one hand the Doomers claim Japan is doomed because people are not spending. Then they turn around and claim Japan is doomed because people are not saving and this will CAUSE A CATASTROPHIC BOND MARKET COLLAPSE. Cognitive dissonance on steroids.

There has not been a collapse in the bond market mainly because JGB's are not sold on the general market. Almost all of the debt is domestically held, which is a bad thing. It is bad because in Japan there are close ties between bureucracy, banks, and business (amakudari at work, how many former bureaucrats sit on the boards of Japanese banks or large Japanese corporations?) The banks and businesses have benefited by getting money and contracts from the government, and in return, they buy these bonds. Were JGB's sold on the world market, like every other government-issued bond, rates would be far higher, and Japan would not have been able to acquire as much debt as it has. The government would have had to manage itself much more responsibly to attract bond buyers. Japan's debt is "debt", you can paint a turd whatever color you like, but it will still be a turd.

We are already seeing consequence which is worse than a bond meltdown or market collapse, either of which we could recover from rather quickly. We are seeing the population rapidly declining. Much of this decline is caused by economic uncertainty, and high living costs associated with an economy which has long lived beyond it's means. This decline in population eliminates any chance of economic growth, or growth-driven inflation. It also makes it eventually impossible for the government to meet fund future entitlement spending.

-2 ( +2 / -4 )

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