Japan's Kuroda Says He'll Be Cautiously Bold
Haruhiko Kuroda, the Japanese government's nominee to become head of the Bank of Japan, mostly told financial markets what they wanted when he appeared at a parliamentary confirmation hearing today. If he gets the job, monetary policy will change: The "scale and scope" of BOJ asset purchases will increase, he said.
Up to now the central bank has concentrated its version of quantitative easing on short-term government debt. Since this is a close substitute for cash, the policy has amounted to swapping one kind of money for another and hasn't accomplished much.
Kuroda is expected to buy larger quantities of assets and, more important, to shift the program to longer-dated bonds. This prospect had already driven bond yields down. Kuroda's remarks reaffirmed the coming shift, which helped yields to fall even further.
Yet Kuroda's comments were guarded in a couple of interesting ways. He didn't promise to bring forward open-ended Federal Reserve-style quantitative easing, which is planned to start next January; he only said he'd consider it. He said that the monetary stimulus he favored wasn't meant to weaken the yen and that it would be difficult for the central bank to buy foreign bonds. He seemed to rule out a fiscal-monetary pact that would require the bank to explicitly monetize government debt.
Unlike Mario Draghi, who committed the European Central Bank to doing "whatever it takes" to preserve the euro, Kuroda promised only "whatever we can do" to push inflation to 2 percent. Some members of the BOJ's policymaking board are known to believe that they can't do a lot.
Stirring too much controversy before he is given the job would have been unwise, no doubt. (At the moment, it's looking as though he'll be confirmed: The opposition Democratic Party of Japan has suggested it will go along.) Even so, these reservations give one pause. Whether Kuroda and his board will be willing to impress the markets with genuine radicalism isn't yet clear.
Ending entrenched deflation might require a bigger jolt than Kuroda has in mind -- and ruling out measures that could in the end be necessary isn't a good idea, however extreme they may seem.
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Clive Crook at email@example.com