'Abenomics' theorist wants further easening, yen's depreciation

January 19, 2013

By HIROSHI MATSUBARA/ AJW Staff Writer

With Japan’s currency dipping below 90 yen to the dollar for the first time in more than two years on Jan. 18, the theorist behind Prime Minister Shinzo Abe’s “Abenomics” strategy said a further drop is nothing to worry about and will benefit Japan’s export-reliant economy.

In a news conference in Tokyo, Koichi Hamada, a Yale University economics professor and Abe’s special economic adviser, also called for the Bank of Japan Act to be revised so that it will never again return to a “too restrictive” monetary principle, based on an ungrounded fear of hyperinflation.

“Economic statistics show how the Bank of Japan alone (among central banks of developed countries) has been reluctant to expand credit, naturally resulting in the yen’s excessive appreciation,” the 77-year-old monetary policy expert said at the Foreign Correspondents' Club of Japan.

“It has set a high hurdle for Japan’s exporting capability, causing Japan to suffer from a massive drop in industrial production, even compared to countries that were directly hit by the subprime loan crisis.”

It should be “worried” only when the dollar/yen rate falls to 110 yen or below, a level prior to the 2008 collapse of Lehman Brothers, which triggered a worldwide economic crisis, Hamada said.

“But 100 or 95 is nothing to worry about,” he added.

After harshly criticizing the BOJ’s restrictive monetary policy over the past 20 years, Hamada also expressed his hope for the central bank to announce specific monetary easing measures at its monetary policy meeting next week.

“The BOJ is threatening Japanese people by (propagating) the wrong idea that inflation can start in the near future, but there is no particular, substantial ground,” he said.

“There is nothing wrong in buying all the governmental debt, as long as it doesn’t ignite inflationary expectations and actual inflation,” Hamada explained. “In the past 70 years, Japan has never gone into hyperinflation."

He said the BOJ must do all it can to lift the economy out of its nearly two decades of deflation.

The economist also called for the BOJ Act to be amended, because the law currently allows the bank too much leeway to decide its own policy objectives regardless of the government's expectations.

“It is very important to institute a legal framework so that the BOJ will not engage in too restrictive a monetary policy that it has favored as an institution.”

The professor praised Abe for bringing visible improvements in the stock markets and currency markets through the “announcement effect” of his commitment to monetary easing policies. But Hamada cautioned about the new prime minister's planned major stimulus packages, the other pillar of Abenomics.

“If government expenditures are increased too much, it will offset the effect of mild inflation to alleviate the government debt and also necessitate a tax increase, making Japan’s economic problems more complex,” he said.

By HIROSHI MATSUBARA/ AJW Staff Writer
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Koichi Hamada poses for photographers before his news conference at the Foreign Correspondents' Club of Japan in Tokyo on Jan. 18. (Hiroshi Matsubara)

Koichi Hamada poses for photographers before his news conference at the Foreign Correspondents' Club of Japan in Tokyo on Jan. 18. (Hiroshi Matsubara)

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  • Koichi Hamada poses for photographers before his news conference at the Foreign Correspondents' Club of Japan in Tokyo on Jan. 18. (Hiroshi Matsubara)

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