On April 7, 2023, Bank of Japan Governor Haruhiko Kuroda leaves the Bank of Japan's headquarters at the mouth of the Motomiyaguchi in Nihonhashi, Tokyo, after a large number of employees greet him. His term was supposed to expire on April 8, but since it was a Saturday, the retirement ceremony was held a day earlier.
After receiving a bouquet of flowers from the staff, Kuroda bowed deeply, smiled and waved to everyone, then got into his car and left to a round of applause.
Haruhiko Kuroda took office as Governor of the Bank of Japan on March 20, 2013, and worked hard but persevered for more than 10 years. No one had ever been able to do that before.
Kuroda's 10-year monetary policy focused on the introduction of the largest quantitative easing in history. During this decade, the monetary base (a measure of the amount of money) has almost tripled, from 134 trillion yen to 646 trillion yen. As of March 20, the BOJ's cumulative purchases of JGBs amounted to 963 trillion yen, and its holdings of long-term JGBs increased nearly sixfold to 575 trillion yen.
On the other hand, in terms of traditional interest rate policy, the policy rate was initially 0% and has only now fallen to minus 01%。In terms of long-term interest rates that affect the real economy, it started out at only 08%, and the highest level is just below zero. Since Haruhiko Kuroda took office, there has been no room for easing interest rate policy, and it is unlikely that special measures will be taken. Quantitative easing, which is financed by the purchase of large quantities of long-term ** bonds, is one"Conspicuous currency", with the aim of creating inflationary sentiment. On its own, it fails to raise growth expectations for businesses and households.
At 3:30 p.m. on April 7, Haruhiko Kuroda wore a dark blue suit and a light blue tie to speak at a press conference at the Bank of Japan's headquarters.
Looking back at the Japanese economy ten years ago, from 1998 to 2012, we experienced deflation for nearly 15 years. In light of this, the Bank of Japan introduced quantitative and qualitative easing monetary policy in 2013. Large-scale monetary easing, together with various measures, has played a positive role in boosting the economy and prices, and Japan is no longer in a state of continuous deflation.
In 2022, the inflation rate (excluding the total inflation rate of fresh food) is 23%。However, during the corona disaster, the Japanese economy remained in a deflationary trend, at -0 in 20212%, also -0 in 20202%。The Kuroda administration's loose monetary policy did not completely eliminate deflation, so Kuroda said: The Japanese economy is still in a deflationary phase.
Unfortunately, due to a long period of deflation, people's thinking and practice have been based on the assumption that wages and prices will not be **, so the 2% price stability target cannot be achieved consistently and steadily."
Norms are ingrained in businesses and homes"Social norms"。Everyone's behavior is based on the assumption that they won't, and it is extremely difficult to change the psychology of low inflation.
Kuroda boasts that employment has improved. A group of economists who have a close relationship with former Prime Minister Shinzo --"Reflator"It is also claimed that this is an achievement of **economics.
The economic upturn has led to tighter labor wages and has added more than 4 million jobs, mainly for women and the elderly, and the employment environment for young people has improved. The situation in which both husband and wife work has also been restored, and the remuneration for work has increased. There has also been a change in the situation of non-growth in wages and prices, and there is a growing trend in wages to reflect price increases. This spring, companies are seeing the highest growth in hiring salary negotiations in 30 years, with an average salary increase of more than 2%. In our view, large-scale monetary easing has had a variety of positive impacts, and policy management to date has proven appropriate. ”
It is debatable whether a decade of job growth is the result of loose monetary policy. If a slight but significant decline in long-term interest rates is one of the results of a decade of easing, the boost to employment is certainly not zero. However, it would be an extreme to attribute the 4 million job increase entirely to the easing effect. Roosevelt-esque determination.
Ten years ago, on April 4, 20013, Kuroda held a press conference to launch the Quantitative and Qualitative Monetary Easing (QQE) program. That day, his eyes were wide open, and he said:"As I have said many times, we are now going to mobilize all possible policies to achieve 2% in about two years' time'Price stability target'。I am convinced that these policies will include all the necessary measures, and in fact, I am also convinced that the goal of price stability can be achieved in about two years"。He was passionate about changing Japan's stagnant economic environment at the time.
What Kuroda tried to show at this time ten years ago was"Roosevelt-esque determination. "。
Kuroda has been a leading critic of the Bank of Japan during his tenure at the Ministry of Finance, and he is a follower of American economist Paul Krugman (now a professor at the City University of New York). In 1998, Krugman published an article entitled "Japan's Recession and the Resurgence of the Liquidity Trap," in which he harshly criticized the Bank of Japan. ** Argues that "the Bank of Japan needs to come up with Roosevelt-style resolve.""to end deflation in Japan.
Kuroda also pointed out that "looking back at domestic and international history, it is true that there have not been many cases where people's inflation expectations have changed significantly in a short period of time, but these have been supported by the strong determination of the policy authorities to make bold policy changes." For example, during the Great Depression in the United States in the thirties of the 20th century, Roosevelt** made clear his firm determination to end deflation and implemented it'New Deal policy'"。This is a speech given by Haruhiko Kuroda in December 2013 during his first year as a director of Keidanren. "These policies of Roosevelt led to a shift in inflation expectations in a relatively short period of time and an end to the severe deflation that accompanied the Great Depression." Roosevelt was referring, of course, to Franklin D. Roosevelt**, who became the United States in 1933**.
Japan's quantitative and qualitative easing monetary policy, introduced in 2013, is designed to come through its size rather than its policy mechanism"Transfer expectations"。A shift in expectations means changing deflationary expectations for businesses and households into inflation expectations. Kuroda's role model was Roosevelt.
When Roosevelt took office in 1933, the United States was in the midst of an unprecedented economic crisis, history says"The Great Depression"。At that time, inflation was minus 10%, the deflationary environment was extremely severe, the banking sector was unstable, and unemployment was high.
At the time, Roosevelt used 'reflation'word, announcing to the American people that he will'Push prices thoroughly until they return to pre-Depression levels'。He emphasized:"If we can't do reinflation, we'll try something else. And we're going to do the best we can." His aim was to change the deflationary mentality that prevailed among the people by demonstrating a strong determination to emerge from the Great Depression.
Subsequently, Roosevelt** abolished the gold standard. It depreciated the dollar by 40% against **, and the effects of the dollar's depreciation helped alleviate deflation. The Federal Reserve Board (FRB), which is only 20 years old, also supported New Deal policies by buying long-term ** bonds. The Federal Reserve headquarters building was named"Aix Building"in honor of Fed Chairman Marina Ex, who contributed during the Roosevelt era.
Haruhiko Kuroda said when he launched QQE in April 2013:"We will implement a completely different monetary easing policy in terms of quantity and quality than in the past"。This is based on Roosevelt"To the best of our ability"determination. On the policy front, ** has developed an unprecedented quantitative easing program that has doubled the monetary base in two years and has worked hard to demonstrate its resolve in numbers.
Over the past decade, however, his resolve has indeed wavered. At the retirement press conference, he said:"I'm not saying that working on expectations is pointless or ineffective"But he also alluded to the Roosevelt sense"Shift expectations"difficulty.
He continued.
The most important element of quantitative and qualitative monetary policy is a sharp reduction in nominal interest rates. Unconventional monetary policy has a direct impact on long-term bonds and long-term interest rates, as is the case in the United States, Japan, and Europe, so having an effect on expectations certainly means lowering real interest rates by acting on the expected price rate, so it's important. However, interest rates themselves are directly controlled by unconventional monetary policy, which also controls long-term interest rates)".
This sentence is a bit puzzling, but it is exactly what Kuroda wants to say.
The QQE, launched a decade ago, had three major policy spillovers: first, by setting an inflation target and starting a massive monetary **"Shift in anticipation"；second, to reduce long-term interest rates through large-scale purchases of long-term bonds; Third, portfolio policy. The Bank of Japan buys long-term Japanese government bonds on its own and asks private sector financial institutions to direct funds to loans and risk assets. Hiroshi Nakaso, who served as BOJ Deputy Governor from 2013 to 2018, expressed a similar sentiment.
Ten years have passed quickly. Kuroda has always been firm in his beliefs and has unshakable confidence in his theories. If his faith wavered, it was because he couldn't use it"Roosevelt-esque determination. "Changing the norm of zero inflation. This is not because of his own lack of determination, but because there is no other monetary easing at all.
It is said that the United States emerged from the Great Depression by entering the Pacific War in 1941 and creating huge demand with huge war spending. The United States did not emerge from deflation by Roosevelt's determination alone. Haruhiko Kuroda's"Cross-dimensional easing"Although it started with zero interest rates, it was flawed from the start.
With the implementation of large-scale easing, investor sentiment in financial markets has improved. Financial instruments tend to move with expectations. Kazuo Kazuma, a former governor of the Bank of Japan (executive economist at the Mizuho Research Institute), who is critical of the Kuroda regime, admits that,"By working on the psychology of market participants, the yen weakened and ** rose, which had a certain effect on breaking through the sense of stagnation of deflation"。Verification of these effects will be discussed later.
Haruhiko Kuroda has been criticized on several occasions for the severity of large-scale easing. He also sometimes makes no secret of his displeasure with such arguments. He was also asked such questions at a press conference on his retirement. In September 2021, the Nihon Keizai Shimbun and Nami Takeshi asked him frankly in an independent interview with him:
Is the long-term easing of policies, such as lower household interest incomes and lower bank profits, also intensifying?
If we compare it with the situation where monetary policy is not loosened, perhaps the (now) economic upturn should have a positive impact on the earnings of financial institutions, and household incomes have also increased due to improved employment; The March inspection also clearly highlighted a marked increase in both economic growth and prices. It is necessary to consider how the *** and cost of easing compare with the results of the simulation. In the economic policy debate, we need to consider what is possible and what is best in this context"。
What Kuroda wants to say is that even if there are some *** the current economic situation is better than if QQE is not implemented.
In March 2021, the Bank of Japan released"More effective and sustainable monetary easing checks"to estimate the boost to the economy from monetary easing since 20013. According to the results of the examination, the average boost in real gross domestic product (GDP) over the seven years to July-September '20 was about 09-1.3%, with an inflation boost of 06-0.7%。
Although the newspaper reported on the above situation, when talking to Kuroda, Kurotakeshi could sense Kuroda's complicated distress.
He doesn't necessarily want to force the BOJ to make estimates in a self-righteous way. But he is not satisfied with Japan's lack of large-scale macroeconomic models to test the effects of the BOJ's monetary policy, both numerically and theoretically.
Kuroda prefers mature discussions based on theory and numbers. In 2002, he published an article to the Financial Times titled "It's Time to Turn to Global Reflation", which sparked controversy and even an uproar on issues such as inflation targeting.
Toyo Yukiten, who has the nickname of Japan's "International Finance Party", said, "I think three people are real geniuses: Haruhiko Kuroda and Hiroshi Watanabe (former Minister of Finance, former ** Bank of Japan) for International Cooperation). Ryozo Mino (current Deputy Governor of the Bank of Japan and former Director General of the Financial Services Agency).
In 1967, Kuroda graduated from the Faculty of Law at the University of Tokyo and joined the Ministry of Finance at the time. He admired the great philosopher of science Karl Popper in high school and studied the philosophy of law in college.
From 1969 to 2007, he studied abroad at the University of Oxford, UK, where he also worked in the Ministry of Finance, which deepened his knowledge of economics. Haruhiko Kuroda attended John R. Hicks' Symposium on Financial Theory. Hicks was awarded the Nobel Prize in Economic Sciences in 1972. Haruhiko Kuroda participated in a seminar for a small number of selected graduate students. He later revealed, "These opportunities prompted me to seriously study monetary theory and monetary policy theory." ”
Hicks expressed such a view in his 1977 book, How to Think About Economics. He said:
The announcement effect of a policy action is a change in people's psychology, a change in their outlook for the future, and only then manifests itself as any actual transaction itself. This is in line with what Hortry calls the 'psychological effect.''It's the same, though'Psychological effects'It is also an inappropriate term because it means something irrational. The announcement effect is completely rational behavior"。
While the term is somewhat esoteric, this is exactly what Kuroda did when he launched his quantitative and qualitative monetary easing program in 2013"Anticipate enhancement effects"。If the bank sets an inflation target of 2% and calls for it"All possible measures", businesses and families will think"This will definitely lead to 2% inflation"and change its pricing and other behaviors accordingly. Kuroda has long held this view. Roosevelt's determination was the starting point for this view, but it stemmed from what he learned from Hicks while studying in England.
Go ahead and see what Hicks has to say:
Expectations for the future (which are entirely reasonable expectations) are formed on the basis of existing data. Policy action is an important complement to existing data. Policy action is bound to change expectations almost immediately. This is what the authors call the announcement effect. From Hortry's analysis, we can learn that the "classic" official interest rate system has, or may have, a strong announcer effect. “
Kuroda was fascinated by these advanced economic theories.
The United Kingdom, where Kuroda studied, later ceded its center of excellence for macroeconomic analysis to the United States. There are still many universities and think tanks in the United States that are able to run complex macroeconomic models. The Jackson Hole Conference was held in the mountains of Wyoming in the western United States, and was attended by the presidents of the most important banks in many countries, as well as many economists, to discuss the latest theories.
Nihon Keizai Shimbun's Takeshi Wanani traveled to Wyoming many times to report on the Jackson Hole meeting, and had the opportunity to feel the warm atmosphere of the meeting. Nowhere else in Japan has there been such a high level of academic debate. The reason Kuroda felt frustrated and lonely about Japan was that Japan had not developed an environment in which he could participate in high-intellectual economic debates.
At the retirement press conference, Kuroda also said:"The analysis of traditional policies has a history of more than 100 years, non-traditional monetary policies have been implemented in the United States and Europe for more than a decade, and in Japan for about 20 years since the introduction of quantitative easing in 2001, so I believe that there will be sufficient theoretical analysis in the future.
After stepping down as governor of the Bank of Japan, Haruhiko Kuroda will move to academia as a senior fellow at the National Institute for Policy Studies.
Let's take a look at another candidate, Yamaguchi, who has also been nominated for the position of BOJ president.
Why do the former ** of the Bank of Japan rate the current employees so poorly? The Ministry of Finance is not without its own internal problems, but it does not criticize incumbent employees so openly by its peers, as the Bank of Japan does".
It is said that Kuroda made these remarks to the Bank of Japan** in early 2011, near the governor's retirement. Former BOJ staff members have harshly criticized the Kuroda regime's massive easing policy, arguing that such a policy seems to be presumptuous. A current Bank of Japan executive also said:'Despite our limited capabilities, we are also trying our best. It's just sad to hear our former colleague make such harsh remarks on **'。
During the decade of Kuroda's administration, there was a subtle rift between the current and former members of the BOJ. From the perspective of former colleagues, Kuroda and the current members seem to have pushed the central bank to extremes. This is seen as a blatant repudiation of the past BOJ system. Current BOJ members see Kuroda as the successor to Deputy Governor Amamiya, but former key BOJ members do not.
An influential BOJ leader alumnus has recommended Hirohide Yamaguchi, who served as deputy governor in the Shirakawa regime, as Kuroda's potential successor.
Yamaguchi has not only been engaged in the planning of monetary policy for a long time, but also has close ties with important figures in the ruling and opposition parties. Under normal circumstances, he would have been the favourite to become BOJ governor, but he resigned as deputy governor in 2013 after lashing out at the Shirakawa regime. Former Vice President Toshiro Muto (former Deputy Finance Minister) and former Deputy Finance Minister Tango Yasuken are also working to support Yamaguchi, according to a source. Muto and Tango are alumni of Kaisei High School, along with Kishida Shou.
Eventually,"The proposal to keep Yamaguchi may be seen as an atavism of the Shirakawa regime, which disappeared out of consideration for the ** Shinzo faction"Colleagues who support Yamaguchi and current employees who support Amamiya are divided within the BOJ. Some commentators believe that the idea of appointing Amamiya as BOJ governor is also influenced by these moves by BOJ colleagues. Another *** revealed,"At the request of Taro Aso, deputy secretary general of the Liberal Democratic Party, Amamiya approached former FSA director Nobuyin Mori on the question of whether to accept the post of governor of the Bank of Japan"。
Kuroda very much wants Amamiya to be promoted to president, because they have worked together and he will be the rightful heir to his own policies." said a ** from the Bank of Japan. However, Kuroda never tried to exert much influence over his successor.