Kuroda Says BOJ Policy Gives Fiscal Spending More Power
Bank of Japan Governor Haruhiko Kuroda stepped into the global debate on the need for governments to do more heavy lifting to support their economies, saying that the ultra-low interest environment created by Japan’s central bank makes fiscal spending more powerful.
Kuroda said Tuesday that the BOJ wasn’t planning to add to its stimulus in tandem with some form of government spending package, but acknowledged that a policy mix was more effective in stimulating prices and the economy than the central bank acting alone.
“If fiscal policy becomes more aggressive with interest rates at appropriately low levels and continued easing in place under the current yield curve control policy in an overall policy mix, fiscal policy will be more effective,” Kuroda said at a press conference in Nagoya.
The comments come after Mario Draghi used his parting remarks from the European Central Bank last week to again call on governments in Europe to ramp up fiscal spending and share the burden of supporting growth with the ECB.
The previous week Kristalina Georgieva, the new head of the International Monetary Fund, called for a more active role for fiscal policy to boost flagging growth as finance ministers and central bankers met in Washington.
With the BOJ’s accumulated asset purchases now larger in size than Japan’s entire economy, Kuroda is closer to the limits of monetary policy than any other major central bank governor. The side effects of his aggressive easing are squeezing the banking sector and warping markets, and the likely impact of adding to stimulus is increasingly being called into question.
While more than 70% of economists surveyed by Bloomberg before the BOJ’s last meeting forecast the central bank to lower interest rates by January, many of them doubt the effectiveness of further action.
“Kuroda has been saying there’s a synergy effect between monetary and fiscal policies. Part of the reason behind these kinds of remarks is that he doesn’t have a choice but to count on a temporary fiscal expansion to prop up growth,” said Masaki Kuwahara, an economist at Nomura Securities Co.
Kuroda denied that the central bank was effectively financing government borrowing through the low rates and by scooping up the lion’s share of bonds from the secondary market. With interest rates already at rock-bottom levels, the BOJ is making it easier for the government to finance its debts.
Despite pushing back a target of balancing the nation’s books, the government of Prime Minister Shinzo Abe hasn’t ramped up spending dramatically. Instead, it has pared its budget deficit with two sales tax increases in the last five years, most recently on Oct. 1.
Were the government to issue more longer-term bonds in the 40-year range or start issuing 50-year debt, that could help limit yield falls for super-long JGBs, Kuroda said in response to a question focusing on those maturities and the difficulties of stopping the yield curve from flattening under BOJ policy.
A Ministry of Finance official said there was no plan to issue 50-year government debt.
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