acting-man.com / By Pater Tenebrarum / March 12, 2013
We Must Be Quick …
After a large fall in Japanese machinery orders (13.1%, a great deal below expectations – note though that this is a traditionally volatile measure), the designated new BoJ governor Kuroda insisted that it was important that the BoJ quickly implement fresh monetary stimulus. However, not everyone seems to agree:
“The Japan government’s choice to lead the country’s central bank promised on Monday to move quickly to implement fresh monetary stimulus to lift the struggling economy, a case underlined by a surprisingly sharp drop in a gauge of capital investment.
However, Haruhiko Kuroda’s declaration that “speed is important” appeared to run into resistance from Bank of Japan board member Koji Ishida, who in separate comments voiced caution against taking unorthodox steps too hastily.
The divergence of opinion highlights that while the nine-member board generally agree on the need for further stimulus, there are differing views on how best to revive an economy that has struggled for consistent growth for years.
“I want to debate policy steps with the monetary policy committee and implement these steps as soon as possible,” Kuroda told lawmakers in a one-day upper house confirmation hearing. He said he would do what ever it takes to hit the Bank of Japan’s inflation target of 2 percent. The economy has rarely seen that level of inflation since the early 1990s.
Kuroda is expected to be approved by parliament later this week because opposition parties, whose support is needed in the upper house, have indicated they would back him.”
Frankly, we’re not even sure whether the rest of the BoJ’s board agrees with this ‘we urgently need 2% CPI inflation’ idea in principle, although there are signs that the board is warming up to Kuroda’s ideas (see further below). In other words, it is probably not merely a dispute over how to ‘get there’, but whether to do so is desirable at all.
Kuroda meanwhile has some really far out ideas. As Dylan Grice remarks in a recent commentary, the leaders of today’s central banks just don’t know what they’re doing. He correctly explains how the Cantillon effect ensures that their policies lead to a redistribution of wealth from late to earlier receivers of the new money. This raises social tensions and increases the support of redistributionist political movements, as many – perhaps even most - people are unaware of how monetary policies actually affect them in practice. He also happens to mention that these modern-day stewards of money probably have very little understanding of money as such, in spite of the fact that they produce gobs of it day-in, day-out. He is correct about that as well.