BOJ’s Kuroda brings out his stun gun
TOKYO: Bank of Japan Governor Haruhiko Kuroda used classic shock tactics on Friday to push through his latest unconventional monetary policy of negative rates: deny, then strike.
Despite months of Kuroda saying the policy was not a timely option, BOJ officials had been quietly considering it as financial markets began to question just how far the central bank could go with its aggressive asset-buying program. “Never say never” is a mantra for BOJ officials, who see themselves as pioneers in battling deflation - through zero rates, quantitative easing and other unconventional policies.
But a razor-thin 5-4 vote underscores the difficulty Kuroda had in winning enough board backing for his shock tactic, and illustrates the doubts among board members about the governor’s line that by sticking to a 2 percent inflation goal the BOJ can make people believe prices will rise.
Publicly, Kuroda was unwavering in saying Japan was on track to hit his ambitious inflation target and that quantitative and qualitative easing (QQE) was working down through the economy.
But talk of more monetary easing began to emerge last month as policymakers fretted over weak inflation expectations, enough to ponder expanding the stimulus, said people familiar with the BOJ’s thinking. The bank’s latest quarterly survey showed that corporate inflation expectations weakened in October-December, and other similar market gauges also sagged. Companies blamed the global economic uncertainty for not raising wages or capital expenditure.
Fine-tuning QQE last month with elements of monetary easing signalled some alarm among central bankers over the heightened deflationary risks, the people said.
Top BOJ economists began looking into whether to further modify QQE or go for a full makeover of the monetary easing framework - all the time considering what policy tools were still available if the BOJ eased again.
Negative interest rates was one of those options, though it was down the list given the technical difficulties of expanding base money while charging banks for piling up funds in BOJ accounts.
At the start of the year, Kuroda switched to stronger language in public to warn he would do “whatever it takes, including more easing,” to hit his price target - likely prompted by the impact of global market turbulence on Japanese share prices and local business sentiment, the people said.
“When stocks are falling this much, it’s hard to justify not acting,” said one of the individuals, who has occasional contact with Kuroda.
DAVOS TRIGGER?
On Jan. 21, a day before flying out for the annual World Economic Forum in Davos, Kuroda told Japan’s parliament he was not considering negative interest rates. But he quietly told his staff to come up with several options in case the BOJ eased.
“Of course, our staff knew that several central banks have adopted negative interest rates, so they’ve been analysing the step for some time,” Kuroda said at a news conference on Friday. “They raised it as one of the options, which we discussed at today’s meeting.”
By the time Kuroda returned from Davos, BOJ staff were ready to propose negative rates, taking a leaf from the European Central Bank’s book. “The ECB showed that combining QE and negative interest rates can work,” one BOJ official said. “It was just a question of overcoming some technical difficulties.” —Reuters