Three Years of Kuroda Bazooka

It is just three years on Sunday, since Governor of Bank of Japan, Haruhiko Kuroda, took the seat. As nominated deflation fighter, Kuroda has been delivering consecutive bold monetary policies, mainly for surprising international market. The fundamental target of 2% inflation within 2 years is still far from achievement. One obvious result of these three years is that Japanese economy is deeply addicted to Kuroda Bazookas.

Only two weeks after the assumption, Kuroda ignited first bazooka of quantitative-qualitative monetary easing, which poured ¥70 trillions of Japanese yen into the market. That unusual and different-dimensioned easing actually surprised international market. Consumers’ Commodity Price Index in April 2014 showed 1.5% growth in a year, which was recognized a positive sign for achieving the inflation target.

Miscalculation for BoJ was introduction of new consumption tax rate, rising from 5% to 8%, applied in the same month. Purchasing mind of consumers was frozen and economy was decelerated. After the trend of inflation refused to show preferable growth, commodity price turned out to be declining, affected by drastic down of oil price. Although Kuroda launched the second bazooka in October 2014, consecutive monetary easing of increasing monetary base by ¥80 trillion, its impact on the market was limited.

From the beginning of this year, BoJ monetary policy suffered from gradual slowdown of Chinese economy and long-time cheap oil. Kuroda decided to introduce negative rate policy as the third surprise to the market. That measure was accepted as a strong medicine by the public. While it reached a target of lowering housing loan rate, mind of consumers got negative with suspicion to the future of monetary policy.

The biggest question to Kuroda is how to get rid of this addiction to this extreme monetary easing. BoJ is increasing possession of national bonds by ¥80 trillion every year. When the bank achieves 2% inflation target, it will reduce the purchase of national bonds. What is going to happen then? It is possible that bond market will show tragic stipulation of the price of national bonds, making a vicious circle of high interest of national bonds, swollen payment of national budget for the interest, skepticisms on credibility of national budget and causing further buying out of national bonds.

A professor of economics, Kazuhito Ikeo, assessed Kuroda’s negative rate policy as a demonstration of remaining resource of BoJ. But, its negative impact is seen in commercial banks. Seeking stable profit and not taking unnecessary risk, commercial banks will rend money only to the corporations with high credibility. Ikeo is skeptical in using monetary policy for economic growth, because the people will not be willing to spend their money as long as they embrace fundamental uneasiness on the future of Japanese economy as a whole, including social security policy.