＜prologue＞
I started a blog called “The Baby Boomer Generation’s Miscellaneous Blog”（Dankai-sedai no garakutatyou:団塊世代の我楽多（がらくた）帳） in July 2018, about a year before I fully retired. More than six years have passed since then, and the number of articles has increased considerably.
So, in order to make them accessible to people who don’t understand Japanese, I decided to translate my past articles into English and publish them.
It may sound a bit exaggerated, but I would like to make this my life’s work.
It should be noted that haiku and waka （Japanese short fixed form poems） are quite difficult to translate into English, so some parts are written in Japanese.
If you are interested in haiku or waka and would like to know more, please read introductory or specialized books on haiku or waka written in English.
I also write many articles about the Japanese language. I would be happy if these inspire more people to want to learn Japanese.
my blog’s URL:団塊世代の我楽多（がらくた）帳 | 団塊世代が雑学や面白い話を発信しています
my X’s URL:団塊世代の我楽多帳（@historia49）さん / X
<Added 3/19/2024> The Bank of Japan finally lifts its negative interest rate policy
At its monetary policy meeting on March 19, the Bank of Japan decided to lift its negative interest rate policy, which is the pillar of its large-scale monetary easing measures.
This is the first interest rate hike in 17 years since 2007. The long-term and short-term interest rate manipulation to keep long-term interest rates low will also be abolished, and a de facto zero interest rate policy will be implemented. New purchases of exchange-traded funds (ETFs) will also end.
The Bank of Japan has determined that “the average wage increase rate in this spring’s labor offensive will be at a high level, creating a virtuous cycle in the economy in which wages and prices rise together.”
The Bank of Japan has begun normalizing its large-scale easing measures that have continued for about 11 years, marking a historic turning point in monetary policy.
However, I think the Bank of Japan’s decision came too late.
Six years have passed since Haruhiko Kuroda took office as Governor of the Bank of Japan. Soon after taking office, at the April 2013 Monetary Policy Meeting, he decided to introduce “Quantitative and Qualitative Monetary Easing (Unprecedented Easing)” aiming for a 2% inflation rate in two years. This is commonly referred to as the “Kuroda Bazooka.”
He was trying to realize the first of the “three arrows of Abenomics” (bold monetary policy, flexible fiscal policy, and a growth strategy to stimulate private investment).
He is one of the so-called “reflationists” who place importance on “reflation policies.” “Reflation policies” are “policies that aim to stimulate the economy by creating effective demand through macroeconomic policies (monetary and fiscal policies) in order to overcome idle facilities and unemployment during a recession, while at the same time preventing the occurrence of high inflation while escaping deflation.”
Specifically, this is an “inflation target + unlimited long-term government bond purchase operation” to achieve an inflation rate of 1-2% per year.
However, even after six years, the target of “2% inflation rate” has not been achieved, and while purchases of long-term government bonds have expanded, the interest rate on 10-year government bonds is aimed at a “zero interest rate” of around 0%. In addition, the interest rate that private banks receive on the “portion exceeding the legal amount” of their current account deposits with the Bank of Japan (the interest rate on the portion within the legal amount is 0.1%) has gone beyond “zero interest rate” and has become a “negative interest rate” of the extreme “-0.1%”, and we are at a dead end.
The economy is recovering even with a low inflation rate of less than 2%, so I don’t think there is any point in continuing the “negative interest rate policy” or the “unlimited long-term government bond purchase operation.” Isn’t it true that the Bank of Japan’s original monetary policy has been left behind by making the “2% inflation rate” its only “goal”?
I believe that the Bank of Japan’s policy is now beginning to show negative effects and that it is time to change it immediately. The Bank of Japan needs to be flexible and agile in its policy changes.
１．Who is Governor Kuroda?
Bank of Japan Governor Haruhiko Kuroda (1944- ) is a former Ministry of Finance bureaucrat, who served as a professor at Hitotsubashi University and president of the Asian Development Bank before becoming Governor of the Bank of Japan. A long-time critic of the Bank of Japan, he has stated clearly that “the Bank of Japan is responsible for Japan’s 15-year deflation.”
He also seems to believe that it is possible to achieve the inflation target through monetary policy alone.
２．What is a “negative interest rate policy”?
In February 2016, the Bank of Japan introduced a negative interest rate policy.
In a speech in September 2016, Bank of Japan Governor Kuroda mentioned the disadvantages of a negative interest rate policy and large-scale monetary easing for the first time. He said that the negative interest rate policy would have a relatively large impact on the profits of financial institutions. However, no policy changes were made.
The Bank of Japan initially argued that the introduction of negative interest rates would lower interest rates on long-term and ultra-long-term government bonds, as well as lower borrowing rates for companies and households, stimulating demand for funds.
However, financial institutions are already in a fierce lending race, subject to a “low interest rate war,” and interest margins are at an extremely low level. With 60% of listed companies being “effectively debt-free” (having more cash on hand than interest-bearing debt), even if interest rates were to fall further, there would be no demand for funds, and negative interest rates are putting considerable pressure on the management of financial institutions, with the “side effects” and “negative impacts” being particularly noticeable, such as forcing regional banks into a difficult situation.
Even after Governor Kuroda’s speech above, there are still no signs of a change in the Bank of Japan’s policy.
３．What is the “JGB Purchase Policy”?
The Bank of Japan aims to keep the 10-year government bond interest rate at a “zero interest rate” of around 0%, and when interest rates exceed this level, the Bank of Japan will purchase government bonds from banks, inject funds into the market and lower interest rates, and when interest rates fall below this level, the Bank of Japan will sell government bonds, recover the funds and raise the interest rate.
As of the end of June 2017, the Bank of Japan’s holdings of government bonds stood at approximately 437 trillion yen, exceeding 40% of the total issued balance.
At the monetary policy meeting in December 2018, the Bank of Japan decided by a majority of 7 in favor and 2 against to “maintain the current monetary easing policy (long-term and short-term interest rate control) to guide the short-term policy interest rate to minus 0.1% and the long-term interest rate, the 10-year government bond interest rate, to around zero percent.”
Regarding purchases of government bonds to manipulate interest rates, the Bank stated that it would “implement flexible purchases up to an increase in the balance of its holdings of approximately 80 trillion yen per year.”
４．Problems with the current Bank of Japan policy
While businesses with debt and individuals with mortgages or other debt may benefit from low interest rates, the majority of individual savers are adversely affected by low interest rates.
Financial institutions are also facing extremely low interest rates, which is putting pressure on their management and, in the worst case scenario, could lead to a resurgence of financial instability. In the fiscal year ending March 2018, 16 banks reportedly had negative interest rates on their total funds.
The “negative interest rate policy” is a special and exceptional policy that is rarely seen even in other countries, and if it continues for a long time, the “interest rate policy” will no longer be effective. I do not think that the Bank of Japan should stubbornly stick to the “2% inflation target” or the “negative interest rate policy.”
At this time, I think that the “policy interest rate” should be returned to a normal “positive interest rate.” I also think that the “government bond purchase policy,” a monetary easing measure that cannot be expected to create normal demand for funds, should be discontinued. I think that an “exit strategy” should be started immediately to create room for policy responses.
Am I the only one who thinks Governor Kuroda looks like a modern-day Don Quixote?