Nominee for Japan’s Central Bank Vows Aggressive Action

Haruhiko Kuroda, the nominee, who announced last week that he would resign as president of the Asian Development Bank, also called on the government to put its finances on a sounder footing to maintain investor confidence in the country’s long-term solvency.

“If I am confirmed as governor, I will clearly communicate to markets that I am prepared to do whatever it takes to beat deflation,” Mr. Kuroda told a confirmation hearing in Parliament.

“The Japanese economy has suffered from deflation for over 10, almost 15 years, which is a global anomaly of the most extreme. As prices have fallen, corporate profits and wages have shrunk, depressing consumption and investment and triggering even lower prices in a vicious cycle,” he said.

“But to avoid a rise in interest rates and a loss of confidence in Japan’s public finances, it is also critical to restore fiscal health in the mid- to long term,” Mr. Kuroda said.

If confirmed, Mr. Kuroda is set to lead a crucial part of Prime Minister Shinzo Abe’s three-pronged plan to spur economic growth. Mr. Abe has pledged to push the Bank of Japan to do more to pump money into the economy, spend generously on public works to stimulate growth and draw on private sector expertise to devise a fresh economic strategy that would make that growth sustainable. The Japanese economy ranks only behind those of the United States and China in size.

Under pressure from Mr. Abe, the central bank has already promised to expand its asset-purchase program to achieve a 2 percent inflation goal, compared with a negative rate of inflation that has dogged Japan for most of the last 15 years. Japan has also kept its policy interest rate close to zero for years, to no avail.

Mr. Kuroda said, however, that the “scale and scope” of the Bank of Japan’s asset purchases had so far not been enough to achieve inflation and that it would be natural for the central bank to buy longer-term bonds.

He also acknowledged that as Japan tackled deflation, the yen would weaken, but he stressed that devaluation was a side effect of an economic policy to bolster growth and not a goal in itself. His comments were in response to concerns that policies that weakened the yen would touch off a global round of devaluations as countries sought to weaken their currencies to lift their exports.

“There is evidence that currencies tend to fall for countries that ease monetary policy on a large scale,” Mr. Kuroda said, “but the B.O.J.’s policy is not targeting currencies.”

“The important thing is to ensure price stability and achieve the 2 percent price stability goal, although it could affect currencies in that process,” he said.

The opposition Democratic Party, which still leads Mr. Abe’s Liberal Democratic Party in Parliament’s upper house, has signaled that it will not block Mr. Kuroda’s nomination. The current Bank of Japan governor, Masaaki Shirakawa, is scheduled to step down on March 19.

Article source: http://www.nytimes.com/2013/03/05/business/global/05iht-yen05.html?partner=rss&emc=rss