Abenomics

"Asked about potentially more aggressive approaches to monetary easing, such as targeting a price level or a rate of growth for nominal gross domestic product, Mr. Kuroda said he thought they were reasonable steps to consider but that the Bank of Japan would stick to its current policy for now. "

Japan Escaping Deflation Trap, Central Bank Chief Says

JACKSON HOLE, Wyo.–Japan is gradually escaping a prolonged period of deflation that has impeded economic growth, stifled investment and put downward pressure on wages, Bank of Japan Gov. Haruhiko Kuroda said Saturday. 

Speaking at the Kansas City Federal Reserve’s Jackson Hole, Wyo., conference, Mr. Kuroda said that, unlike the U.S. and Europe, Japan isn’t struggling with unemployment, which currently stands at 3.7%. 

However, he said deflation had led to other forms of economic malaise that continue to plague the Japanese economy, but which Mr. Kuroda said is gradually healing as aggressive economic policies take hold. 

“Wage-setting practices have changed during the prolonged period of deflation. Wages of regular employees tend to reflect labor market conditions only quite slowly,” he said. “Some kind of mechanism, a ‘visible’ hand, is necessary for wages to rise.” 

Part of such a mechanism is the central bank’s aggressive monetary easing, which includes an indication that it will take all steps necessary to return Japan’s inflation rate back up to 2% after two decades of falling prices and wages. 

“The Bank of Japan’s price stability target can serve as a benchmark for firms’ wage setting,” Mr. Kuroda said. 

He added the policies were having a tangible impact on economic conditions, with labor market conditions improving and firms showing a greater propensity to invest. 

Still, Mr. Kuroda acknowledged that it could change some time to push up Japanese consumers’ inflation expectations after so many years of deflation. 

Asked about potentially more aggressive approaches to monetary easing, such as targeting a price level or a rate of growth for nominal gross domestic product, Mr. Kuroda said he thought they were reasonable steps to consider but that the Bank of Japan would stick to its current policy for now. 

“Maybe in the future. But at this stage I don’t think we should change our plan,” Mr. Kuroda said. 

Under price-level targeting, a central bank would promise to overshoot its inflation target to make up for any period of undershooting. Under nominal GDP targeting, the central bank would target a constant growth rate in noninflation adjusted GDP. 

Mr. Kuroda vowed to maintain Japan’s aggressive monetary-policy easing until the country reaches its 2% inflation target, which he said could happen as early as this fiscal year. 

Mr. Kuroda said that once inflation starts moving higher, 10-year government bond rates around 0.5% will not be sustainable.