Bank of Japan Governor Haruhiko Kuroda is unlikely to see the Japanese economy achieve its 2% inflation goal during his term. The failure of the bank’s drastic monetary easing in meeting the inflation goal, which Kuroda repeatedly claimed was possible, has raised doubts about the bank’s handling of the economy. Now that the bank’s monetary policy has clearly shown its limitations, it will likely affect the future of Abenomics.
The central bank chief was elusive about where responsibility lies for the lackluster performance of the economic policy, only saying it is hard to pinpoint the responsibility. Instead of acknowledging the policy’s failure, Kuroda frequently cited “external factors” as obstacles to success.
In April 2013, when the bank launched the policy of large-scale monetary easing, Kuroda was full of confidence, promising to bring up the inflation level to 2% within a couple of years. He spoke clearly of policy goals such as increasing bank loans and changing the consumers’ deflationary mindset.
But the use of capital investment loans and other forward-looking loans remain low. Consumers and corporations, uncertain of what the future will bring, are neither spending nor investing. A Mizuho Securities analyst said, “Kuroda was like a different man this time. He’s now blaming others for the policy’s failure.”
Another analyst from Ekonomisuto noted, “No one trusts the central bank anymore,” after the BOJ repeatedly pushed back its unrealistic price goals, while insisting that there is no limit to monetary policy. Kuroda, even to this day, promises the bank will do anything necessary to swiftly achieve the 2% goal. Few in the market are listening.
After evaluating the effects of the policy in September, the BOJ showed some willingness to adjust it to accommodate actual economic conditions by trying to rectify poor performance by the pension fund due to extremely low interest rates. Additional easing becomes harder when bank pays attention to the policy’s adverse effects. During the press conference after the policy meeting, Kuroda said, “Fiscal policy and structural reform are needed to ensure sustained economic growth,” indicating the need for more government involvement. There is not much left that the central bank can do.
An economic researcher at the Daiichi Economic Research Institute said, “At this point, additional easing is no longer realistic. The BOJ should now concentrate on advising the government on issues related to the goal of raising prices, including wage increases and growth strategy.” (Slightly Abridged)