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Exit From Quantitative easing Should Go ‘Quite Well’

Exit From Quantitative easing Should Go ‘Quite Well’Exit From Quantitative easing Should Go ‘Quite Well’

Bank of Japan Governor Haruhiko Kuroda said the central bank will be able to unwind its massive policy stimulus “quite well”, dismissing concerns that a shift away from years of aggressive easing could roil the economy.

“Whoever the leader...I’m quite sure that exiting from the current easing programs could be managed quite well,” Kuroda said Tuesday at The Wall Street Journal CEO Council, MarketWatch reported.

The BoJ has enough tools to smoothly undo its easing policy, which centers on holding short- and long-term interest rates at very low levels through large bond purchases, Kuroda said.

The focus of Japan’s monetary policy debate has been shifting away from how the BoJ could ease policy further to stimulate growth and inflation, to whether and how the bank should dial back its stimulus.

The change in conversation follows disappointing results of Kuroda’s four-plus years of aggressive easing. He initially aimed to generate 2% inflation in about two years. But even today, Japan’s consumer price inflation remains at around zero.

Kuroda acknowledged the BoJ could face “some challenging issues” once it starts to normalize its ultra-easy policy, but he remained tight-lipped about whether he wants to serve another term. His five-year term ends in April 2018.

Kuroda said the BoJ has yet to embark on a policy withdrawal, stressing the need to maintain ultralow interest rates to guide inflation toward the 2% target. It is “quite appropriate” for the bank to press ahead with its current policy considering Japan’s “somewhat slow” price increases and “somewhat disappointing” wage growth, he said.

Kuroda said a policy divergence between the US—where the Federal Reserve has begun to raise interest rates—and Japan is a “natural” phenomenon. Europe and Japan are “lagging behind” the US, he added.

Formerly the chief of the Asian Development Bank, Kuroda expressed concerns about reviving calls for protectionism in wealthy economies.

“Protectionism—I don’t think it will contribute to reducing inequality,” Kuroda said. “If any country introduces protectionist measures, that will hurt that country and also...the world economy. I do not think that protectionism is likely to prevail.”

Speaking to reporters ahead of a meeting of Group of Seven finance ministers and central bankers in the southern Italian city of Bari, on Friday, Kuroda warned that rejecting free trade would hinder global growth and exacerbate inequality.

“It’s true that inequality is spreading within each country” among both advanced and developing countries, Kuroda said. “Stopping technological innovation and free trade, and resorting to protectionism, won’t be a solution to the problem.”

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