Skepticism on Kuroda Easing

The different dimensioned monetary easing led by Bank of Japan Governor, Haruhiko Kuroda, marked the third anniversary on Monday. Although the Kuroda kept on launching surprising monetary policies, his goal of 2% inflation target has not been achieved. While a bunch of money was poured into the market, wages of workers and spending of consumers has not raised yet. There grows an argument that monetary easing policy has to be revised.

Among three arrows of Abenomics, bold monetary easing was only a brand-new strategy, while other two, fiscal mobilization and growth policy, could be categorized as traditional. At the beginning of Kuroda easing, there was an opinion that the policy had certain effects as seen in growing income of exporting manufacturers or increasing wage.

In late 2012 or early 2013, economy in United States was in recovering phase and European monetary crisis was getting settled. High value of U.S. dollar or European euro brought lower rate of Japanese yen and high average of stock price in Tokyo. However, trickle down theory did not work in Japan. Suffering from consumption tax hike in April 2014, real income of consumers declined.

Deeply rooted in expectations, Kuroda’s monetary easing policy has a highly psychological aspect. Asahi Shimbun quoted Kuroda’s words: “There is a saying in the tale of Peter Pan that ‘it cannot fly forever when it doubt flying.’ Positive attitude and convincing are important.” The fact is commodity price has not seen any growth with negative elements like the price down of crude oil. Targeted schedule for achieving 2% inflation was delayed from two years later than April 2013 to the first half of FY 2017. Nevertheless, BoJ cannot change its policy, being afraid of negative economic mind.

Underground magma is swelling. BoJ has been purchasing a huge amount of governmental bonds. As its consequence, amount of BoJ’s asset has grown as much as 80 percent, or ¥410 trillion, of Japanese gross domestic products. Compared to the level in U.S. Federal Reserve with 25% against GDP or in European Central Bank with 20%, BoJ possesses significant amount. Skepticism on monetary policy can lead to steep decline of price of Japanese governmental bonds.

The skepticism has already spread to the world. “Abenomics is gravitated to monetary policy too much,” reportedly told Paul Krugman in the meeting for evaluation of international economy. But, as long as Prime Minister Shinzo Abe connects economic policy with other political agenda including constitutional amendment, monetary easing may not be changed.