The Bank of Japan could usher in a growth spurt unseen in a generation by stepping up stimulus and ending deflation, according to Haruhiko Kuroda, the head of the Asian Development Bank and a potential contender for BOJ chief.
“Japan’s economy has suffered from prolonged deflation that must be eradicated -- that would raise short-to-medium term growth prospects significantly,” Kuroda, 68, said in an interview in Tokyo yesterday. “Two percent plus for calendar year 2013 would be quite possible and for some years could be sustained,” he said, referring to a pace of expansion not maintained in Japan since stagnation set in in 1992.
Kuroda, who said he was “satisfied” with his current job amid Prime Minister Shinzo Abe’s preparations for unveiling a nominee to succeed Masaaki Shirakawa, said that additional BOJ stimulus could be justified for 2013. The BOJ last month said it would start open-ended asset purchases only in January 2014, and the board is forecast to keep its policy unchanged at a Feb. 13- 14 gathering, according to a Bloomberg News survey of analysts.
Japan, along with other nations, has “really substantial room for monetary easing,” he said. There’s the equivalent of trillions of dollars of financial assets that could be bought by the BOJ, according to Kuroda.
He didn’t specify how policy makers ought to add liquidity. Asked whether the BOJ could buy stocks, Kuroda noted that it has already been purchasing some. Decisions on how to add quantitative easing are up to the central bank, he said.
Kuroda, a former career Finance Ministry civil servant and Tokyo University graduate who studied economics at Oxford, declined to comment on whether he was a contender to lead the central bank. He said he was “satisfied” with his current job at the ADB, with about four more years left on his term.
The head of the Manila-based development lender supported the yen’s slide as a “natural adjustment” from overvaluation and said that the “global standard” for central banks to achieve their inflation targets is about two years.
“The identities of the new BOJ executives are of critical importance” to the policy outlook, Masayuki Kichikawa, chief Japan economist at Bank of America Merrill Lynch in Tokyo, wrote in a Feb. 8 note. “We anticipate the BOJ will move steadily to adopt the course charted by the Fed, including a stepped-up expansion of its balance sheet” and extension of the maturities of government debt bought for its asset-purchase fund, he wrote.