Former Bank of Japan Governor Masaaki Shirakawa has criticized the powerful monetary easing undertaken by his successor and current chief Haruhiko Kuroda, saying its impact on inflation and economic growth has been "modest."
Monetary policy has become a "quick fix" to structural problems that require more robust reforms, Shirakawa said in a magazine published Wednesday by the International Monetary Fund. He called for central bankers to reflect on the reason for and consequences of prolonged monetary easing.
Under Kuroda, who succeeded Shirakawa in 2013, the BOJ has embarked on powerful monetary easing, stepping up purchases of assets such as Japanese government bonds. But the central bank has recently been facing market pressure to modify its yield curve control program, designed to keep both short-term and long-term interest rates at rock-bottom levels, while major central banks continue to raise interest rates to fight inflation.
"On the inflation front, the impact (of the BOJ's monetary easing) was modest. And on the growth front, its effect was modest too," Shirakawa said, warning of the adverse impact of protracted easing on productivity growth.
"This was the case not only in Japan but also in many other countries that followed it by adopting unconventional policy after 2008," he said in an article titled "Time for Change." Shirakawa was the BOJ governor from 2008 to 2013.
Kuroda, whose term ends in April, has repeatedly said ultralow rates are still needed to achieve the central bank's 2 percent inflation target. Japan has seen price hikes broadening in recent months due largely to higher import costs of energy and raw materials, but the governor has said robust wage growth is missing.
Still, consumer inflation has been accelerating at a much slower pace than in the United States and some European nations. Shirakawa said Japan's unique practice of long-term employment, meaning that companies tend to avoid layoffs, is to blame.
"This makes (companies) cautious about offering permanent wage increases unless they are truly confident about future growth. It translates into lower inflation," Shirakawa added.
Kuroda is expected to be replaced by academic Kazuo Ueda, whose formal appointment is still pending. Ueda has told parliament in his confirmation hearings that monetary easing should continue to achieve the 2 percent inflation target.
"Even in a globalized economy, differences in the social contract or economic structure matter. This undermines the case for a one-number-fits-all inflation-targeting strategy," Shirakawa said.
"Now that we know its limitations, the time is ripe to reconsider the intellectual foundation on which we have relied for the past 30 years and renew our framework for monetary policy," Shirakawa said of inflation targeting, innovated in response to the stagflation of the 1970s and early 1980s.
Shirakawa is known to have expressed skepticism about the BOJ's introduction of a 2 percent inflation target in 2012, shortly before it was adopted and enshrined in a joint accord with the government.
