TOKYO - Rapid inflation and the weakening yen continue to squeeze household budgets across Japan, prompting renewed debate over the country's economic policies. Former Bank of Japan Governor Haruhiko Kuroda, who spearheaded the central bank's aggressive monetary easing campaign under Abenomics, argues that the overall economy remains on a positive trajectory and that wage growth is now exceeding inflation.
Many consumers say they feel the burden of rising prices in daily life, particularly when shopping for food and other necessities. Price increases have accelerated this year, with more than 20,000 products expected to become more expensive, while the yen has weakened to around 160 yen against the U.S. dollar, pushing up the cost of imported goods.
Kuroda said average wages have risen enough to offset higher consumer prices, resulting in an increase in real disposable income. While acknowledging that many households have yet to feel the benefits, he urged people to assess their finances calmly and noted that Japan has entered a cycle in which higher wages and prices reinforce one another.
Reflecting on Abenomics, the economic program launched during the second administration of former Prime Minister Shinzo Abe, Kuroda defended the unprecedented monetary easing measures introduced during his tenure. He argued that the policies helped Japan escape deflation and contributed to economic growth averaging in the low 1% range.
The Bank of Japan's inflation target of 2% was eventually surpassed, with consumer prices rising above that level for four consecutive years from 2022 and reaching 3.1% last year. Kuroda maintained that wage growth of around 5% now exceeds inflation, meaning household purchasing power is improving overall.
Asked whether the Bank of Japan's massive monetary easing contributed to the current weakness of the yen, Kuroda rejected the idea. Instead, he pointed to recent comments by Prime Minister Sanae Takaichi, arguing that her advocacy of aggressive fiscal spending had boosted inflation expectations and accelerated the yen's decline.
Kuroda also expressed skepticism about proposals to reduce the consumption tax. He argued that such measures would simply add to inflationary pressures and that broad stimulus policies are no longer necessary in the current economic environment.
During his tenure, Kuroda had hoped to achieve stable 2% inflation within about two years. However, factors including the COVID-19 pandemic complicated those efforts. The Bank of Japan's negative interest rate policy remained in place until March last year, when current Governor Kazuo Ueda oversaw its removal.
Kuroda endorsed Ueda's approach, describing the current path of gradual interest rate increases as appropriate. He said economic growth remains steady at around 1%, employment conditions are strong, and the central bank's policy normalization is proceeding without major problems.
He also defended the Bank of Japan's independence, arguing that responsibility for fiscal policy and government borrowing lies with elected officials rather than the central bank. Monetary policy, he said, must focus on maintaining price stability rather than facilitating government spending.
The interview sparked criticism from commentators, who argued that Kuroda's policies helped create some of today's challenges. Critics noted that the Bank of Japan now holds roughly 44% of Japan's long-term government bonds and accumulated approximately 36 trillion yen in exchange-traded funds before ending purchases in March 2024.
Some panelists argued that the dramatic weakening of the yen—from around 79 yen per dollar when Abenomics began to roughly 160 yen today—represents a significant decline in the value of Japan's currency and a major side effect of prolonged monetary easing.
Others emphasized that while aggregate economic indicators may show improvement, many households continue to struggle. They pointed to persistent income disparities, varying wage growth across industries and company sizes, and the challenges faced by people who remain outside the reach of public support programs.
Several participants also argued that Japan's future policy focus should be on addressing income inequality rather than implementing broad tax cuts. They said targeted support for lower-income households would be more effective in responding to the uneven impact of inflation.
The discussion concluded with calls for a broader reassessment of Abenomics and its legacy. While acknowledging that aggressive monetary easing may have helped combat deflation in its early stages, critics argued that Japan must fully examine both the achievements and the long-term costs of the policy as the country navigates a new era of inflation and higher interest rates.
Source: TBS
