A Benjamin Cole post
In Japan, the inflation rate is about 1.2% by the Bank of Japan’s alternative index, and the unemployment rate is a scant 3.1%. The stock market is up 15.1% in the last year. Capital spending by Japanese companies in Q3 was up 11.2% year-over-year.
Haruhiko Kuroda is the Governor of the Bank of Japan, and the world’s best central banker. Kuroda could wring his hands about “long and variable lags,” and curtail the Bank of Japan’s quantitative easing program, now running about $50 billion a month in an economy half the size of the United States economy. BTW, the Bank of Japan pays 0.10% interest on excess reserves.
Instead Kuroda shows steel and resolve. Read this from Nov. 30, Reuters: “Bank of Japan’s governor has dismissed calls from critics to go slow on hitting the central bank’s 2% inflation target and stressed the need to take ‘whatever steps necessary’ to achieve its ambitious consumer price goal.”
Kuroda told an audience of Toyota auto execs and others, “In order to overcome deflation—in other words, break the deadlock—somebody has to show an unwavering resolve and change the situation. When price developments are at stake, the BOJ must be the first to move.”
Contrast the stalwart Kuroda with the feeble, dithering, inflation-cowering of Chairman Janet Yellen and Vice Chairman Stanley Fischer of the U.S. Federal Reserve Board.
But first consider: The U.S. unemployment rate is 5.0%, much higher than Japan’s 3.1% rate. The core U.S. PCE inflation rate is 1.3%, about the same as Japan’s, and below target. The S&P 500 is about back to where it was a year ago, not up 15.1% like the Japan’s stock market. U.S. capital spending is weak, while Japan capital spending is strong.
While the mediocre U.S. economy compares unfavorably to Japan’s on many levels, the Fed is actually and presently tightening monetary policy. Think about it: Where Japan does $50 billion monthly in QE, the Fed is shrinking its balance sheet, or reverse QE. Where the Bank of Japan pays 0.10% IOER, the Fed pays 0.25%. And the Fed, after endless fretting, appears ready to raise rates at their Dec. 16 meeting.
So we have the U.S. central bank conducting reverse QE, raising interest rates, and paying banks not to lend through IOER. All this while the PCE price index is below target and falling, and real growth is sluggish.
Please Mr. Kuroda, come to America. We need you at our central bank.