Blame Olympic Record Price Tag For Return To Deflation Battle Stations
Eight years ago this month, the Bank of Japan embarked on one of economic history’s most audacious journeys to end deflation. How far has Governor Haruhiko Kuroda’s team gotten?
Not very. In fact, by some measures, the BOJ is now shifting into reverse. That’s the sad implication of Kuroda admitting on Tuesday that rather than 2% inflation, his team will be lucky to hit 1% by 2023.
Where things went so wrong has myriad lessons for policymakers from Seoul to Washington.
When Kuroda announced the 2% goal in April 2013, the plan was for a two-year timeline. The BOJ began with a series of monetary “bazooka” blasts and pledged to fire a minimum of 80 trillion yen, or $740 billion, annually into the government bond market. This overwhelming-force strategy drove the yen down by about 30%, boosting exports and corporate profits.
After that, Kuroda & Co. kept adding tools to its arsenal. The BOJ increased and broadened debt purchases, cornering fixed-income trading. It loaded up on stocks via exchange-traded funds. So much so that by 2018, five years into the journey, the BOJ’s balance sheet surpassed the size of Japan’s $5 trillion economy, a first for a Group of Seven nation.
Yet the intended effects never materialized.
Inflation, for example, barely made an appearance. At the high point, consumer prices barely got halfway to 2%. And when it did, it was the bad kind: imported through higher energy prices with an undervalued currency amplifying the effects.
The bigger problem is that wages never quite perked up as the government hoped. At first, Japan Inc. got into the swing of things with annual pay bumps here are there. Yet a nation racked by deflation dating back to the 1990s needs steady, sizable and sustained salary increases to enliven consumer behavior. Not a 2% boost here, and a bonus here and there.
In 2013, when then-Prime Minister Shinzo Abe hired Kuroda, his government tried to make the 1980s great again. Abe rose to power in December 2012 with a bold plan to restructure an aging, unproductive economy watching China zoom by in gross domestic product terms. The specter of shock therapy added some spring to Japan’s step, globally.
forbes.com |
