Why time is running out for Japan’s economy
Dan Steinbock says a slim upward revision in GDP growth cannot mask the fact that the Bank of Japan’s ‘whatever it takes’ policy is backfiring
Recently, Japan’s second quarter GDP growth was revised upwards, to 0.7 per cent, after four consecutive quarters of stagnation. But don’t set your hopes too high.
More than three years ago, the conservative caution of Bank of Japan governor Masaaki Shirakawa faded into history as his successor, Haruhiko Kuroda, pledged to do “whatever it takes” to achieve the 2 per cent inflation target. Yet, today inflation remains close to zero and the Japanese stock market is down 13 per cent.
Irrespective of the outcome of its meeting this week, the BOJ can only postpone the inevitable.
The outlook remains weak, with real GDP growth forecast at less than 1 per cent until the early 2020s
Under Kuroda, it has boosted quantitative and qualitative easing with a negative interest rate policy. Base money and the central bank’s holdings of Japanese government bonds have each swollen to almost 400 trillion yen (HK$30.5 trillion) – 80 per cent of the country’s GDP – and they continue to expand at a pace of￥80 trillion yen annually.
If US Federal Reserve chief Janet Yellen were to do something similar, it would be economic and political suicide.
Until recently, Japan was a different story. Now, divisions are spreading in the central bank. Kuroda’s fractured majority is sticking with the original plan of large-scale government bonds and negative rates to boost growth and inflation. However, some advocate greater flexibility in purchases, hoping that would make a difference. Sceptics would like to curb the purchases, even at the risk of perceptions of tightening, a rising yen and plunging markets.
Nonetheless, all three seem to believe Japan’s fortunes can be reversed by monetary policies alone and that these policies are not part of the problem.
