Bank of Japan Dissenter Wants to Disarm Monetary ‘Bazooka’
A lone voice challenges Kuroda’s grip, warns more easing could fuel bubbles and volatility
TOKYO—Japan’s stock market is trading near 15-year highs. The government can borrow money for nearly nothing, and real estate is making its strongest comeback in a quarter-century.
Good news? Not necessarily to Takahide Kiuchi, the leading voice against the Bank of Japan’s whatever-it-takes approach to monetary easing. Since late last year, the central bank has voted 8-1 every month to continue its policy, and each time, Mr. Kiuchi has been the lone dissenting board member.
The fear of the former Nomura Securities chief economist is that a bond market where the central bank has such a big role could invite dangerous volatility. He also believes excessively loose monetary policy could lead to bubbles forming.
Saturday marks two years since Bank of Japan Gov. Haruhiko Kuroda introduced his first “bazooka” of monetary easing, turning Japan into a laboratory for whether radical steps to force prices to rise can succeed. Mr. Kuroda says that despite some bumps along the way, Japan is on track to achieve 2% inflation.
But Mr. Kiuchi has opposed further monetary easing, he said on March 5, because “the positive effects that could be brought about by the expansion would not be worth the accompanying costs and side effects.”
As the market’s main buyer of bonds, the Bank of Japan’s heavy hand could be the main driver of low interest rates, according to Mr. Kiuchi. Separate from potential overheating in stocks or property, he fears a sudden collapse of confidence in the easing policy or the health of the government-bond market that would send interest rates soaring.
Mr. Kiuchi’s lonely dissent is rooted in a view of the bank’s history. Back in Japan’s bubble days a quarter-century ago, critics said the bank kept interest rates too low for too long, then popped the bubble too abruptly. The current BOJ system, created by a 1998 law, is partly meant to prevent such mistakes by giving a stronger role to a governing board of people drawn from various backgrounds rather than have policy set by career central-bank officials.
For now, the government is paying less than 0.4% interest on 10-year bonds, but with falling liquidity—a potential result of the BOJ’s dominance in the government-bond market--“the market would become less resilient against negative shocks and thereby become unstable more easily,” Mr. Kiuichi said in the March speech.
He may be a lone dissident for now, but his views reflect growing discomfort about what Mr. Kuroda has done. If the BOJ chief feels compelled to ease even more later this year, as many economists expect, the Kuroda-Kiuchi clash could be a harbinger of a broader debate.
At the core of the clash is a differing view of Japan’s current state, in which prices seem to have stabilized after more than a decade of deflation but aren’t rising. Mr. Kiuchi thinks trying too hard to go further could cause distortions and deflect attention from structural changes.
Mr. Kuroda, backed by Prime Minister Shinzo Abe, says that only by firmly getting 2% inflation to take hold can Japan see a true revival. “Overcoming deflation itself will contribute to raising Japan’s growth potential,” Mr. Kuroda said last month. “People will start to take more risks and invest in new ventures.”
Mr. Kuroda has gunned for an element of surprise with aggressive steps and a public-relations campaign emphasizing his policy’s effectiveness. Mr. Kiuchi’s monthly dissent tends to undermine that message.
The 51-year-old Mr. Kiuchi joined the central bank’s nine-member governing board in July 2012. Former colleagues at Nomura Securities describe the classical-music buff as a straight arrow who spoke politely even to junior staffers and frowned on the lowbrow humor sometimes heard on brokerage floors.
Kohei Otsuka, a member of parliament who helped select Mr. Kiuchi for the BOJ, said the economist wasn’t the type to flatter clients. “He’s not a sales-pitch kind of guy,” said Mr. Otsuka.
When Mr. Kiuchi arrived at the central bank, he was viewed as eager to expand monetary stimulus, and he supported Mr. Kuroda’s initial bazooka two years ago.
But from the start, Mr. Kiuchi couched his support for stimulus with caution about how much it could achieve and wariness about side effects. He said in 2013 that monetary easing and the resulting drop in the yen wouldn’t necessarily cause a sharp increase in Japanese exports, a prediction that has mostly been borne out so far.
Inflation initially revved up but has fallen back in recent months, hitting zero in February. That is partly because of lower oil prices, but also because consumer demand is weak.
To Mr. Kuroda, this was a reason to ramp up his policy, which he did on Oct. 31 by raising the central bank’s government-bond purchases by ¥30 trillion to ¥80 trillion ($670 billion). Three colleagues joined Mr. Kiuchi in voting against the October move. Those three later backed off and said they would support Mr. Kuroda for now, leaving Mr. Kiuchi as the sole objector.
To Mr. Kiuchi’s concerns, the Kuroda camp responds that as long as the Bank of Japan is buying debt at an aggressive pace, it would be hard for bond yields to get out of control. “I don’t see any circumstances that would cause damage,” said the bank’s deputy governor, Hiroshi Nakaso, at a news conference last month.
But people familiar with Mr. Kiuchi’s thinking said he feels he must play the role of stopgap to discourage further loosening. They said he has told visitors: “I’ll say what I want to say.”