New BOJ leadership faces challenges

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The Bank of Japan's (BOJ) new governor, Haruhiko Kuroda, on Thursday renewed his pledge to expand monetary easing and to achieve a 2-percent inflation goal in two years at his inaugural news conference, just a day after he took office.

The former Asian Development Bank president, now the helmsman for the central bank of the world's third largest economy, Kuroda' s new policy has drawn a wide range of attention.

Can he achieve the 2-percent inflation target? What would he bring to the Japanese economy? As questions remain unanswered, challenges await.


Kuroda expressed optimism at Thursday's news briefing about achieving the recently introduced 2-percent inflation target in two years to overcome more than a decade of growth-sapping deflation.

He said, "Even though there may be lots of difficulties, we must achieve the goal and I have confidence.

"I'm resolved to take every step possible until we make it."

Earlier on the day, Kuroda also promised Prime Minister Shinzo Abe that he would do his utmost to achieve the 2-percent inflation goal.

"To Prime Minster Abe, I said that I will make all-out efforts, together with the two deputy governors, to pull Japan's economy out of deflation," Kuroda told reporters after meeting the prime minister and receiving his letter of appointment.

"It is undoubtedly that we need to carry out bold monetary easing from both perspectives of quantity and quality," Haruhiko Kuroda said.

"Quantitative easing is indispensable," he said, adding that more purchases of government bonds and other assets to inject more cash into the banking system will be a likely movement for the BOJ.

Mission impossible?

As Kuroda's 2-percent inflation goal is in line with Abe's policy to revitalize Japan's economy by expanding monetary easing and thus is favored by the prime minister, analysts say it could be Kuroda's Waterloo as well.

"Quantitative easing doesn't work effectively," said Yukio Noguchi, a professor at Waseda's Financial Research Institute in Tokyo.

"Liquidity in the banking system has been largely expanded, but the money stock didn't react. Not just in Japan, it's the same phenomenon in the U.S. It's common sense around the world."

Some analysts say that the current deflation of Japan is structural. It's a result of the integration of the Japanese economy with the rest of the world and what Japan's economy really needs in order to be revived is structural reform.

According to a website survey conducted by, although the new BOJ governor is generally favored by the market, only 40 percent of surveyors think that he can actually make the 2-percent inflation goal.

"If Kuroda's measures fail to meet the market's expectations, and when the expectations turn to disappointments, new market risks will occur," said JP Morgan Chase's Toru Sasaki.


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