The monetary easing policy the Abe administration is going to take is basically right. However, as I have mentioned so many times, a combination of issuance of government bonds and monetary easing policy as Mr. Mitsubashi proposes will not help pump money into real sector of the economy unless banks lend money to corporations. This is because banks will pump the money gained through monetary easing policy into the financial market.
Direct assumption of the country’s debt by BOJ makes it possible to lend money to corporations contributing to GDP. If this is mentioned, some people immediately claim the nonsense that it would give damage to the central bank’s independence. However, if the central bank take a monetary policy to benefit bankers and their families, that really gives a remarkable damage to its independence. The central bank cannot be an organization which works for the profit of a specific family or group, or politician. Any monetary policy should be fair and transparent and should entail accountability. Regrettably, there seems to be no such a central bank at all.
December 24, 2012
Bank Of Japan (photo from Wikipedia)
English translation of a Japanese article: Nikkan Gendai – December 21, 2012 –
Far from having no independence, the Bank of Japan is already dead.
Abe’s threat makes BOJ easily raise the white flag
<Complete acceptance of additional monetary easing measures and inflation target>
The Bank of Japan (BOJ) has already completely surrendered to the Abe “administration.” Whereas Abe has blatantly urged the BOJ to accept an inflation policy, BOJ at the monetary policy meeting on 20th unanimously decided on an additional monetary easing package worth 10 trillion yen and virtually decided to introduce a 2 percent price hike Abe proposes. In a word, “Abenomics” has been swallowed. Although it has spoken about the central bank’s independence, the BOJ has been back to its old palace waiting woman.
The BOJ has aimed for a 1 percent hike as a tentative “goal” for price stabilization. However, Abe criticized that “the goal is not set in the stone.” He has clearly claimed to “have the BOJ target” a 2 percent price hike. At first, BOJ President Shirakawa resisted such blatant political intervention. He said that “we want the government to respect the central bank’s independence” and with regard to a 2 percent inflation target, he rebutted by saying that “the people don’t simply want an inflation.” However, after the LDP won a landslide victory, he bothered to visit Abe personally and yielded to him so easily at the monetary policy meeting on 20th. It is far from the BOJ’s independence.
“Before the Lower House election, there were some BOJ old boys who got furious about (the way how Shirakawa let Abe say whatever he wanted to say) and President Shirakawa kept on resisting Abe. However, with two-thirds of the seats gained by the LDP and New Komeito, revision of the Bank of Japan Law, which will strengthen the invention by the government, is about to become realized. Such being the case, an atmosphere (that no response should be allowed) has been created within the BOJ. As they were worried that revision of the Law might make it possible for the government to intervene in the personnel relations about positions lower than the president, they tried to tentatively show their allegiance. This really shows a bureaucratic approach to defending the organization.” (BOJ informant)
This is involved with the election of president planned for April next year. Personnel relations on decision of BOJ president require the approval of the Diet; approval of the Upper House and the Lower House, respectively. The LDP and New Komeito have 102 seats in the House of Councilors, which fall short of the majority by 16 seats. The BOJ was too optimistic. Seeing the House of Councilors, however, there are many political parties which can agree on monetary easing policy with the LDP and New Komeito. This seemed to scare the BOJ.
<Mr. Kazumasa Iwata as Next President to be Decisive?>
Combined with Your Party (11 seats), Nihon Ishin no Kai (3 seats) and Kokumin Shinto (3 seats), all advocates for revision of the BOJ Law, they get the majority. However hard President Shirakawa may resist, an aggressive advocate for monetary easing policy will be nominated a new president as Mr. Abe expects. Mr. Kazumasa Iwata, director of Japan Center for Economic Research, is considered to be the most likely candidate. President Shirakawa has given up. This indicates that the BOJ wants the government at least to grant it a right to choose its vice president.” (Kasumigaseki official)
President Shirakawa, completely in constraint state, made an excuse, saying “if we deepen the understanding that there is a framework to carry out monetary policy flexibly, it has no meaning to discuss prospect or target.”
As for an inflation target, he had good deception, saying “we will give a conclusion at the next meeting next year.” He is just putting off the inevitable.
“How deplorable the BOJ is! The Abe administration has not yet been formed. Mere “unofficial approach” has made the BOJ move around. I can only say that the BOJ itself gives up its independence. It does not seem that they live up to their responsibility to take a monetary policy for the people. The BOJ, which plays ostrich, makes a fool of us.” (Doshisha University Professor Noriko Hama specializing in international economics)
The common people had better be prepared for hyperinflation and protect their life.