Haruhiko Kuroda at Jackson Hole
Haruhiko Kuroda, chief of the Bank of Japan, was a participant at the Jackson Hole Economic Symposium last week. He was part of a panel discussion on August 27 along with Banco de Mexico’s chief Agustín Carstens and European Central Bank Executive Board member Benoît Cœuré.
At the outset of Kuroda’s remarks, he stated that given Japan’s economic experiences and thinking about the resilience of its monetary policy, “in the long run, low inflation and low nominal interest rates are most likely to coexist.”
This is a profound statement coming from the chief of a central bank that was the first to undertake steps that came to be known as quantitative easing. This implies that a monetary policy may not have all the answers when a recession raises tough questions for an economy in the future.
Optimistic about negative interest rate policy
Negative interest rates were introduced in Japan in February 2016 when a rate of -0.1% was applied to a segment of the money that banks keep in the Bank of Japan. The central bank has been criticized for introducing negative interest rates, which reduced the cost of borrowing and ate into bank profits (MTU) (SMFG) (MFG).
This measure reduced yields on long-term and super long-term bonds as well as long-term borrowing costs. But Kuroda noted that it “stimulated firms’ demand for long-term funding and households’ demand for mortgage loans, thereby benefiting a wide range of borrowers.”
He said that this effective implementation of a negative interest rate policy has shown that “zero lower bound of nominal interest rates is no longer an insurmountable constraint in practice.”
He also noted that although rates couldn’t be arbitrarily pushed into any level of negative territory, the level in Japan “is still far from such lower bound.” This is like saying that rates could go even lower in Japan.
Kuroda explicitly said that the Bank of Japan wouldn’t hesitate to take measures in any of the three dimensions—quantity, quality, and interest rates—to ensure that its price stability target of 2% inflation is met.