The Three Most Famous Words in Central Banking
The notion that Bank of Japan is out of ammunition is nonsense, according to its governor, who says he can still do grand things.
(Bloomberg Opinion) -- Haruhiko Kuroda won't have it. The widespread notion that the Bank of Japan is out of ammunition is nonsense, according to its governor, who says he still has the capacity to do grand things.
Just look at his counterpart at the European Central Bank. “Like Mario Draghi, I think we can do these things if necessary,” Kuroda said in an interview with Bloomberg TV’s Kathleen Hays earlier this week.
In a narrow sense, Kuroda is referring to Draghi's recent remarks flagging further stimulus. But his comment also invites comparisons with the ECB president’s touchstone speech in 2012, when in the midst of the euro crisis he uttered three of the most famous words in the central-banking lexicon: “Whatever it takes.” Less often cited is the next sentence: “And, believe me, it will be enough.”
Right there is Kuroda’s biggest problem. Investors, companies, consumers and even the prime minister who appointed him seem to be losing their belief that the BOJ can conjure up any more monetary magic.
If he intended to send a signal – and, believe me, Kuroda is a canny media operator, despite his avuncular manner – it fell on deaf ears. Markets on Monday were instead fixated on President Donald Trump’s suspension of planned tariffs on Mexican imports.
Kuroda’s steadfast pursuit of the BOJ’s 2% inflation target may be the explanation. The central-bank governor said he will “swiftly respond” if Japan’s ability to reach that level is jeopardized. The BOJ isn’t anywhere close, and few observers see a chance of hitting it soon. The question is whether it remains a credible goal, not so much when it will be reached.
The government appears to have lost interest. To the extent they can rouse themselves to address the inflation target, political leaders are giving Kuroda license to set it aside. Prime Minister Shinzo Abe this week described what he considered proper economic goals. Inflation got the back of his hand.
“It’s true that the 2% price target hasn’t been reached, but while we have a kind of 2% price stability target, our real objectives, including those for monetary policy, such as spurring job growth to reach full employment, have been achieved," Abe said in parliament Monday.
Abe is right that the economy is in reasonable shape by some yardsticks. The jobless rate is 2.4%, close to a three-decade low. Numbers this week showed gross domestic product grew at an annualized 2.2% last quarter. Machinery orders rose 5.2% in April.
Even core inflation, as disappointing as it is, was 0.9% in April. That’s far better than the negative 0.2% notched in December 2012 when Abe led the Liberal Democratic Party to power. Still, 2% looks a long way off. The flickers of positive data in the first quarter mask persistent weaknesses.
Kuroda has already taken the measures that came to define Draghi's tenure at the ECB, such as quantitative easing, where Japan was the pioneer, and negative interest rates, where it followed Europe.
The ECB president's eight-year term ends in a few months. Whomever European leaders select to succeed Draghi is unlikely to cite Japan as a guide, the country's progress notwithstanding.
Japan has a low-inflation problem that Abe can’t simply wish away. But more pressing may be the lack of faith Kuroda can do anything about it.
To contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.
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