Bank of Japan Governor Haruhiko Kuroda rejected the idea of helicopter money, dousing speculation that this could be the next policy step as prices fall and growth wanes in the world’s third-largest economy.
Given the current institutional setting, at this stage there is "no need and no possibility for helicopter money," Kuroda said in a BBC Radio 4 program that was broadcast Thursday. “At this moment, the Bank of Japan has three options with quantitative and qualitative easing with negative interest rates." These current policies can be expanded if needed and there are no significant limitations to further monetary stimulus, he said.
The Japanese yen strengthened sharply after Kuroda’s comments, which come ahead of a meeting of his policy board next week and as Prime Minister Shinzo Abe’s government prepares a fiscal spending package in an effort to support growth. People familiar with the discussions at the central bank have indicated that an increasing number of officials at the BOJ are concerned about the sustainability of the current framework for massive monetary stimulus.
Investors may greet Kuroda’s remarks with caution after he rejected the notion of adopting a negative interest rate policy about a week before he did so in January. The governor also surprised markets in October 2014 by adding stimulus a few days after he said he expected the inflation trend to improve.
Ben S. Bernanke, who met Japanese leaders in Tokyo this month, had floated the idea of perpetual bonds during discussions in Washington with one of Prime Minister Shinzo Abe’s key advisers in April.
Etsuro Honda, who has emerged as a matchmaker for Abe in corralling foreign economic experts to offer policy guidance, said that during an hour-long discussion with Bernanke in April the former Federal Reserve chief warned there was a risk Japan at any time could return to deflation.
Bernanke noted that helicopter money -- in which the government issues non-marketable perpetual bonds with no maturity date and the Bank of Japan directly buys them -- could work as the strongest tool to overcome deflation, according to Honda. Bernanke noted it was an option, Honda said.
Analysts at ING in London said despite the negative-rates episode in January, their view is that next week’s BOJ decision will focus on an expansion of existing policies rather than looking at forms of helicopter money.
Kuroda said in June that laws don’t allow helicopter and that the BOJ had no intention of financing government debt.
Masaki Kuwahara, an economist at Nomura Securities in Tokyo, said it was hard to judge whether Kuroda was trying to damp expectations about further monetary easing on July 29.
"I expect the BOJ to add stimulus to avoid a return of the deflationary mindset because the price outlook is deteriorating," Kuwahara said. While he said the BOJ will probably indicate they’re not doing helicopter money, with the government’s fiscal package coming out, Japan may see policy that amounts to something similar.
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