Kuroda Sees Yen's Rise as Threat to Inflation Goal

Bank of Japan Gov. Haruhiko Kuroda, right, arriving for a G-20 finance ministers and central bank governors meeting during the annual International Monetary Fund and World Bank spring meetings on Friday. ENLARGE
Bank of Japan Gov. Haruhiko Kuroda, right, arriving for a G-20 finance ministers and central bank governors meeting during the annual International Monetary Fund and World Bank spring meetings on Friday. Photo: mandel ngan/Agence France-Presse/Getty Images

WASHINGTON—The yen’s appreciation in recent months could undermine the Bank of Japan’s efforts to raise the inflation rate to 2% and lead toward additional easing measures, Haruhiko Kuroda, the central-bank governor, said in an interview with The Wall Street Journal.

The comments, made over the weekend on the sidelines of the semiannual meeting of the International Monetary Fund, amplified earlier concerns Mr. Kuroda had expressed publicly about the stronger yen, which has appreciated by 11% against the dollar this year and against other currencies, including the euro. The trend hurts Japanese exporters and puts downward pressure on import prices, holding down inflation.

“If excessive appreciation continues, that could affect not just actual inflation, but even the trend in inflation through its impact on business confidence, business activity, and even through inflation expectations,” Mr. Kuroda said.

The BOJ had relied heavily on a weaker yen for the progress it has claimed, both by pushing up import prices and by helping narrow the “output gap,” a measure of how far the economy is operating below potential.

BOJ officials had said the weaker yen helped reduce the gap by supporting exports and by boosting the stock market. But now that the yen is strengthening, those gains are at risk and Mr. Kuroda is likely to elevate its role in coming policy decisions.

“Although our monetary policy is not targeted to the exchange rate, we continue to carefully monitor exchange-rate movements. And as I always emphasize, if necessary to achieve 2% inflation target at the earliest possible time, we would not hesitate to take further easing measures,” he said.

The BOJ’s next policy meeting is set for April 27-28. Mr. Kuroda has effectively opened the door to easing measures then, but he avoided sending a clear signal that action will be taken.

​While​Mr. Kuroda has emphasized his willingness to take whatever steps are necessary to lift inflation to 2%, there is one bridge he says he won’t cross: “helicopter money.” This refers to the central bank printing money (for example, by buying government bonds) to explicitly finance expanded government spending or tax cuts.

​“We have no intention to employ helicopter money, anything like that,” Mr. Kuroda said, because it would blur the division of responsibilities between parliament, which is responsible for fiscal policy, and the central bank, which sets monetary policy.

Helicopter money, also called monetary finance, gets its name from an academic paper by the late Nobel Prize-winning economist Milton Friedman, which asserted that dropping newly printed money from helicopters was guaranteed to raise inflation. ​

Former Fed Chairman Ben Bernanke revived the idea in 1999 when he was still a Princeton University academic as a solution to Japan’s deflation and again in 2002 as a Fed governor. With central banks around the world still struggling to rejuvenate growth and lift inflation, Mr. Bernanke broached the idea again in a blog post this month. “Under certain extreme circumstances…such programs may be the best available alternative. It would be premature to rule them out,” he wrote.

​While Mr. Kuroda called Mr. Bernanke’s arguments “thoughtful,” he made it clear he was unpersuaded.

“He’s very strong in economic theory as well as economic history,” Mr. Kuroda said of Mr. Bernanke. “And as such, I always admire him. But again, we have no intention to employ helicopter money. ”​

Mr. Kuroda said he didn’t want to jeopardize the central bank’s independence in Japan. He noted that ​the Japanese government is already running a large deficit while the BOJ is, independently, purchasing from the market all the bonds, and then some, needed to finance it.

That leaves the BOJ reliant on an expansion of existing policies as it considers what to do in the face of a stronger yen and lost inflation momentum and when to act if at all.

Japanese inflation expectations hit a three-year low in the first quarter, according to a survey conducted by the central bank, a development​that Mr. Kuroda noted in the interview.

Inflation and growth remain stuck near zero and stock prices in Japan have fallen sharply this year.

Still he sought to cast a positive light on what the BOJ has achieved in three years of aggressive easing. The output gap has shrunk, which should result in inflation pressure, he said. Moreover, the central bank’s policies are putting downward pressure on housing and corporate-loan rates, which should stimulate building and investment

The central bank introduced a new negative interest-rate policy in January—charging banks 0.1% interest on some of the reserves they have on deposit.

Mr. Kuroda said the BOJ has room “technically and theoretically” to push rates​down at least as far as minus 0.4%, as the European Central Bank has done. ​“But that does not mean that we will or we should,” he said.

He held out the possibility of some new combination of negative rates and securities purchases if needed.

“Without hesitation we would adopt additional monetary easing by way of quantity, quality and interest rate, individually or collectively,” he said.

Write to Jon Hilsenrath at [email protected] and Takashi Nakamichi at [email protected]


WSJ.com: US Business

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