Bank of Japan, PM Abe and Kuroda: Shirakawa Warned about No Quick Fix

Bank of Japan, PM Abe and Kuroda: Shirakawa Warned about No Quick Fix

Joachim de Villiers and Kanako Itamae

Modern Tokyo Times


The Bank of Japan witnessed the changing of the guard from Masaaki Shirakawa to Haruhiko Kuroda in 2013. However, the former governor of the Bank of Japan appears to be more accurate in his forecast. Shirakawa was more conservative in his approach to the many issues that beset the Japanese economy, when compared to the current governor of the Bank of Japan. After all, when Kuroda took over the reigns he made it clear that his target was to reach an inflation target of 2%. Yet, the words of Shirakawa in 2013 appear to be more accurate given the current economic conditions in late 2014. This is in comparison to the lofty statements made by Kuroda last year.

Lee Jay Walker at Modern Tokyo Times says: “From the outset, Shirakawa made it abundantly clear that you had no magic wand. In other words, the quick-fix approach didn’t appear obtainable because the economic situation is too complex and beset by many failings. Also, it is equally clear that internal and external issues impacted greatly during the reign of Shirakawa. Therefore, the former governor of the Bank of Japan was focused heavily on steadying a very difficult ship beset by international economic storm clouds and the terrifying power of nature. On top of this, the international economy was in a severe slump and this all collectively impacted on Shirakawa who steadied the economic ship.”

Shirakawa stated openly that printing money aggressively by itself – or based on other major government intervention – would not solve the long spiral of deflation based on a revitalized Japan. However, Kuroda, sharing the economic mantle of Prime Minister Shinzo Abe, believes in a Japanese style of shock therapy based on major state intervention. Ironically, for some this is deemed to be a capitalist approach but it shares much within the area of state socialism, irrespective of the political jargon being used.

Shirakawa commented in 2013 from the start of the Abe and Kuroda venture that: “A lack of cash isn’t what’s keeping companies from increasing capital expenditure.”

He further commented: “If there was a single thing that would have cleared the fog and solved all problems, Japan wouldn’t have been in this situation for 15 years.”

In a past article by Modern Tokyo Times it was stated that: “This is a fair point and given the perilous nature of the debt ratio in Japan and other important factors; then clearly short-term objectives may not be what they appear even if a 2% target is reached under Kuroda. After all, not many people predicted the economic malaise and mismanagement of many major economic powers. However, the recent negative global economy in the northern hemisphere shows that many parts of the machinery collectively helped the meltdown.”

In other words, Kuroda is more than adamant that the endless cycle of deflation can be solved by pumping vast economic resources aggressively into the system. Yet, like Shirakawa indicates, if this economic strategy was so simple then Japan would have solved the situation a long time ago. Therefore, Shirakawa fully understands the mass complexity of a unique economic approach that Japan took many decades ago during the post-war period.

Lee Jay Walker says: “This reality was heavily based on the economic approach taken by Yoshida Shigeru (1878-1967) and the same can be stated about his political legacy. Of course, many changes have taken place in Japan since this period but the foundations were laid firmly by Yoshida. Also, Japan is unique among all major economic powers in the world and this notably applies to low unemployment, low crime, stock market dominated by Japanese companies, limited immigration – and many other areas.”

Kuroda, unlike Shirakawa, took the reigns of power at the Bank of Japan by insisting that a new dawn will emerge based on pumping money into the economy aggressively. He commented prior to being selected that: “I believe that [the BOJ] is not doing enough in terms of the size of its asset purchases or the range of assets being bought.”

Abe and Kuroda clearly belong to the same hymn sheet because both support an ultra-easy monetary policy. In the initial period the idea was to pump money into the economy and focus on weakening the yen in order to boost exports. Of course, other policies related to the economy were formulated because Abe and Kuroda believe that radical economic polices are needed in order to rejuvenate the economy. Therefore, both individuals focused heavily on breaking the cycle of deflation.

However, turning the clock forward to late 2014 then it appears that Shirakawa is more accurate. This negative reality applies to recent economic figures that stress the economy of Japan shrank by 1.6% between July and September in 2014, when applied to GDP (Gross Domestic Product). Therefore, recent figures according to the BBC are following on from “… a revised 7.3% contraction in the second quarter, which was the biggest fall since the March 2011 earthquake and tsunami.”

Modern Tokyo Times reports “Abe had promised a new approach to the public debt issue and other areas of the economy. Yet, just like other nations, throwing good money at negative economic realities often achieves little despite signs of initial promise. The same reality applies to many European Union (EU) nations. Similarly, the United States (US) seems to be little better because real issues are not being addressed outside of state socialism. This applies to propping up an inept capitalist system that is generating more debt and so forth – along with growing economic gaps between rich and poor.”

The initial hope following on from the confidence espoused by Abe and Kuroda now seems to be going pear-shaped. Indeed, this is why Abe is calling for a snap election because he wants a fresh mandate in order to keep the internal political tide at bay, given the reality of factionalism within the political system. At the same time, the increase in sales tax from 5% to 8% was meant to be a stepping-stone to a further increase. However, the second increase is now being debated more vigorously based on the current economic reality and the same applies to the correct timing.

Of course, with the political opposition being in complete disarray then clearly Abe does have time on his side. In saying this, Japan can’t just keep on squandering more money by focusing so narrowly on pumping money into the system. Also, while the deflation cycle needs to be solved it should be based on strengthening the economic system rather than gambling with the future.

Lee Jay Walker gave guidance to both main writers


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