TOKYO — The nominee to become the next Bank of Japan governor said Monday that he would do “whatever is needed” to finally end deflation in the world’s third-largest economy.
Haruhiko Kuroda, who announced his resignation as president of the Asian Development Bank last week, 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 ten, 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 spearhead 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, or B.O.J., to do more to pump funds into the economy, spend generously on public works to kick-start 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 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 target, compared to a negative rate of inflation that has dogged Japan for most of the past 15 years. Japan has also kept its policy interest rate close to zero for years, to no avail.
Mr. Kuroda said, however, that that “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 imperative to trigger growth in Japan, and not a goal in itself. His comments came after concerns that policies that weaken the yen would trigger a global round of devaluations as countries seek to weaken their currencies to boost 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 leave his post on March 19.
Article source: http://www.nytimes.com/2013/03/05/business/global/05iht-yen05.html?partner=rss&emc=rss