Haruhiko Kuroda = Franklin Delano Roosevelt

In April 1933 FDR stunned the markets, the pundits, and his own administration by devaluing the dollar.  In June 1933 he stunned everyone again by blowing up the World Monetary Conference, which was trying to restore a fixed exchange rate regime.  In October 1933 he stunned everyone again with his “gold-buying” (i.e. dollar depreciation) program, which caused some of his top officials to resign in protest.

In 2003 Ben Bernanke said Japan needed “Rooseveltian resolve.”

A few years later almost all of the major developed economies needed Rooseveltian resolve.

And today the central banker that best illustrates Rooseveltian resolve is the head of the BOJ, Haruhiko Kuroda.

The Bank of Japan Governor not only surprised the markets with his latest splurge of monetary easing. He sprang it on his own board members just two days earlier, jolted into action to stop them making a low-ball forecast that might have sunk his flagship inflation target.

To achieve maximum effect for the shock decision, Haruhiko Kuroda and right-hand man Masayoshi Amamiya kept only a handful of elite central bank bureaucrats in the loop as they laid the ground for the expansion of their quantitative and qualitative easing (QQE) programme.

They didn’t even give the usual forewarning to senior bureaucrats at the Ministry of Finance, according to interviews with nearly a dozen insiders and government sources with knowledge of the bank’s deliberations.

.  .  .

Timing was critical – and not of his choosing. At the policy meeting the board would also issue a new consumer inflation forecast for the next fiscal year, based on the median estimate from the nine members. But two days before publication, the preliminary estimate was only around 1.5 percent, three of the sources said.

That was well below the 1.9 percent forecast made in July, and if published could have been fatal to his key goal of hitting 2 percent from April next year. Since price expectations play a key role in the consumer behaviours that ultimately determine prices, doubts about the target could be self-fulfilling.

.  .  .

It worked. They revised their forecasts to take account of the QQE injection, bringing the figure up to 1.7 percent, enough to keep Kuroda’s target within sight and perhaps drain the growing pool of doubters.

That’s about as close to a Svenssonian “target the forecast” approach as I’ve ever seen.

Though Kuroda won the vote, which will boost the BOJ’s government debt purchases by $260 billion a year and triple its buying of risky assets, he also paid a price for the manner and haste of the decision: a board split almost down the middle.

Because policy board members are barred from discussing policy without a quorum in a formal meeting, Kuroda sent BOJ bureaucrats as his emissaries to corral a majority for his easing plan, sources said.

He knew he had the votes of his two deputies, and that there was no hope of winning over the board’s two market economists who have long expressed public doubts about QQE, especially Takahide Kiuchi, who wants the programme terminated in two years.

So fierce lobbying focused on the board’s two former businessmen, Koji Ishida and Yoshihisa Morimoto.

Despite frantic efforts, he failed to win them over. Worse, though they had rarely voiced open doubts about QQE before, their opposition would now become public.

The sources said the swing voter was the hard-to-predict former academic Ryuzo Miyao, who took a long time to convince.

One suggested Kuroda had let a genie of dissent out of the bottle, which could make future easing decisions more difficult to achieve.

Yes, but elected officials have the last word:

Takeshi Minami, chief economist at Norinchukin Research Institute and one of just four of the 19 economists who had correctly forecast the Halloween surprise in a Reuters poll, expects the bank will want to ease again in mid-2015.

If so, Kuroda, whose determination to stay the course is unflagging, could well need Prime Minister Shinzo Abe to stack the BOJ board with reliable reflationists when Miyao’s term ends in March and Morimoto’s in June.

“In order to completely overcome the chronic disease of deflation, you need to take all your medicine,” Kuroda said on Wednesday. “Half-baked medical treatment will only worsen the symptoms.”

A lesson the ECB has yet to learn.




29 Responses to “Haruhiko Kuroda = Franklin Delano Roosevelt”

  1. Gravatar of TravisV TravisV
    10. November 2014 at 05:39

    Bernanke deserves credit for going against the elite consensus as well (albeit less aggressively than Abe / Kuroda)…..



    Jon Hilsenrath: Wall Street Journal 9/28/2012: “How Bernanke Pulled the Fed His Way”

  2. Gravatar of effem effem
    10. November 2014 at 08:28

    Perhaps a dumb question but what exactly is the problem in Japan. Seems to me that real per-capita GDP growth over the last few decades isn’t significantly different than other developed countries. Additionally, the labor market seems fine. Isn’t the goal of economics essentially to keep people employed and have per capita RGDP growing at a reasonable rate?

  3. Gravatar of W. Peden W. Peden
    10. November 2014 at 08:58

    Great stuff.


    I think that the problem for Japan these days, as opposed to 15/20 years ago, has to do with their susceptibility to further deflationary shocks. A normal central bank targeting interest rates and inflation at the ZLB and with stable/falling prices is very much disposed to suboptimal monetary policy.

    You can also make arguments that, if money is non-superneutral (i.e. the rate of money supply growth has no equilibrium effect on RGDP) and a mildly inflationary trend of spending increases RGDP growth, then Japan has a free lunch to eat. I don’t think Scott thinks that argument is persuasive, and neither do I. What matters for Japan is avoiding the next recession/depression on their current policy path.

    The sorts of situations where non-superneutrality is most plausible are things like hyperinflations and hyperdeflations, and Japan is a long way from either. There are also interesting arguments about sticky wages, deadweight costs of the inflation tax on holding cash, and productivity norms, from respectable economists like Selgin and Friedman, but I’m not convinced of any of them enough to think that they could be major departures from superneutrality. An economy can prosper with stable prices, 1% average deflation, 1% average inflation etc.

  4. Gravatar of Major.Freedom Major.Freedom
    10. November 2014 at 09:02

    Cole and Ohanian convincingly showed that “FDR resolve” caused the depression to last as long as it did.

    Austrians have convincingly shown that central banks can only delay and exacerbate corrections that their own past inflationary activity have made necessary.

    What people need is not socialist money, nor socialista with “resolve.”

    They need economic freedom. Only indivodual market activity can solve problems caused by actions that deviated away from it.

  5. Gravatar of Major.Freedom Major.Freedom
    10. November 2014 at 09:26

    I often read critics of Austrian theory assert that it is a tacit attack on investor ability. I’ve seen the vulgar versions like “You guys think investors are so stupid that they can never learn from the mistakes you guys claim they make because of the Fed.”

    I’ve said it many times before how rare it is to see pundits and anti-economists engage in self-reflection, and rarer still is the self-reflection when criticizing Austrian theory.

    Those who advocate for NGDPLT, are they not tacitly attacking investors? The question can be asked is, why in MM theory haven’t investors up until today learned from their repeated past mistakes causes by the Fed?

    If the response is that investors need specific information, namely, a rigid rate of change in NGDP controlled by central banks, and this is somehow not an attack on investors for failing to anticipate future conditions effectively, then I will respond with OK, I agree that investors need specific information as well, namely free market relative prices, spending, and interest rates, and that this is not a tacit attack on investors for failing to anticipate future conditions either.

    But if one insists Austrian theory attacks investors because of the belief that investors need specific information that presently does not exist but should, then the same premises imply MM theory attacks investors as well.

  6. Gravatar of effem effem
    10. November 2014 at 09:36

    @ W. Peden

    Would seem to me that Japan has been near the zero-bound for a very long time. And i see no evidence that deflationary shocks (e.g., 2008) impacted Japan any differently than other developed countries. What am i missing?

  7. Gravatar of ChargerCarl ChargerCarl
    10. November 2014 at 11:04

    Love that Kuroda quote at the end. Sounds like something you would say Scott.

  8. Gravatar of W. Peden W. Peden
    10. November 2014 at 12:33


    It affected Japan very differently from Australia, for instance.

  9. Gravatar of TravisV TravisV
    10. November 2014 at 15:27

    “Fed’s Rosengren says fight for higher inflation should be vigorous”


  10. Gravatar of benjamin cole benjamin cole
    10. November 2014 at 15:51

    All hail Kuroda. The lone central banker in the world willing to use QE aggressively for the public good and economic growth. Other central bankers still cower in front of inflation totems, encrusted with hoary but oblique warnings of “hidden costs and pending consequences.”

    And what has been the cost of the Federal Reserve’s QE program? Evidently an elimination of a few trillion dollars in debt for US taxpayers and very little increase in the rate of inflation— oh and perhaps few million jobs created.

    But be afrisd of “hidden costs!” Future financial instabity!

  11. Gravatar of Steve Steve
    10. November 2014 at 17:22

    Now that the Japanese have figured out how to run a printing press, someone needs to show them how to make babies!

  12. Gravatar of Scott Sumner Scott Sumner
    10. November 2014 at 19:21

    effem, Their RGDP is probably slightly below potential, but it’s hard to be sure. In addition to W. Peden’s arguments, I’d add that 2% inflation would make their huge public debt problem easier to address (compared to mild deflation.) Equilibrium interest rates are so low in Japan that even 2% inflation may not add much to nominal interest costs on the debt.

    ChargerCarl, He seems like the most MM central banker in the world right now, although Mark Carney might be equally so if he had dictatorial powers.

  13. Gravatar of Joel W Joel W
    10. November 2014 at 19:45

    Seems to me like the split vote might help the credibility of the project. If Thomas Schelling met Urban Dictionary he might call it a zero f***ks given commitment device. Kuroda is so committed to reflation that he gives zero f**ks about consensus.

  14. Gravatar of Luis Pedro Coelho Luis Pedro Coelho
    11. November 2014 at 01:31

    What’s funny about the medical analogy is that *in monetary policy, homeopathy works*. It’s all about the placebo effect.

  15. Gravatar of effem effem
    11. November 2014 at 06:24

    That seems like quite a weak justification for an extreme policy that is having a negative impact on real wages. As for the debt: Japan’s debt is domestically owned. Inflating it away is simply a transfer from the people to the government. Is this not just a tax? I prefer my taxes to be transparent.

  16. Gravatar of effem effem
    11. November 2014 at 06:34

    @W. Peden

    I can name many countries that were nowhwere near the zero-bound that fared poorly in the great financial crisis. There seems to be no correlation to me between the level of inflation/rates and how a country fared in the recession of 2008-09.

  17. Gravatar of ssumner ssumner
    11. November 2014 at 06:57

    effem, No, it’s nothing like an inflation “tax” as the Wicksellian equilibrium rate is currently well below zero. You seem to have missed my point.

    Regarding the lower real wages, didn’t you argue in your previous post that the stimulus would not boost employment? Then how does it lower real wages?

  18. Gravatar of TravisV TravisV
    11. November 2014 at 07:03

    Noah Smith: “There’s More to QE Than Krugman Thinks”


  19. Gravatar of Mikio Mikio
    11. November 2014 at 07:08

    Fascinating stuff, isn’t it? I suspect, politically, they want to go as far as possible with all relflationist guns blazing, and ram through the tax hikes, until the elections of 2016. Then they will use the momentum for structural reform. Not much reform before that, just planning. Too risky, as they might lose the 2016 vote.

  20. Gravatar of effem effem
    11. November 2014 at 07:10


    Whether we can pinpoint the mechanism or not, how can you deny that real wages dropped basically in perfect unison with the JPY?

    I personally believe that as a social issue real rates should always be at least zero (and zero is probably the right number in today’s world). Someone who has worked hard and saved should be able to at least maintain their standard of living. Although i realize this is philosophical and others could disagree.

  21. Gravatar of TravisV TravisV
    11. November 2014 at 07:14

    “Rosengren Wants More Evidence of Inflation Before Rates Rise”


  22. Gravatar of W. Peden W. Peden
    11. November 2014 at 07:24


    I don’t think that a qualitative country-by-country analysis is a good way to think about this sort of question, but at least you don’t have “no evidence” anymore. 😉

  23. Gravatar of John Becker John Becker
    11. November 2014 at 08:28

    I agree with Effem here. It doesn’t seem like money is the biggest problem in the Japanese economy. After all, low inflation is supposed to be a good thing. On the other hand, the economy is riddled with chronyism, corpratism, interest groups, Yakuza, etc. 20 years of wasted government spending in the name of Keynesian stimulus hasn’t helped either. Shouldn’t addressing these things be more important? Even Scott would admit that the structural problems in the Japanese economy are probably slowing their growth more than monetary issues.

    I think you can convincingly argue that “monetary” mistakes like allowing deflation are really results of bad supply side policies (regulations, tariffs, etc) and that addressing something like deflation won’t actually cure the disease.

  24. Gravatar of TallDave TallDave
    11. November 2014 at 10:58

    Japan really needs to get this right, for the sake of everyone. The “liquidity trap” model is doing terrible harm to humanity right now.

  25. Gravatar of TallDave TallDave
    11. November 2014 at 11:16

    TravisV — good piece! Thanks for sharing.

    effem/John Becker,

    Maybe it helps to consider an extreme example — if the Fed set a negative 5% inflation target tomorrow, that would be great news to T-Bill owners, and holders of jobs with downward-sticky wages who didn’t lose those jobs, but unemployment would increase, lots of businesses would close, and savers would lose a ton of consumer surplus on the spending side from lost investment and innovation.

    Obviously Japan’s not in straits quite so dire, but keep in mind there are feedback effects from sub-optimal monetary policies that exacerbate other problems.

    There’s a lot of ruin in a country, but different monetary policies can tend to increase or decrease the level of ruin 🙂

  26. Gravatar of Bob Murphy Bob Murphy
    11. November 2014 at 14:34

    Scott, generally speaking, you *don’t* want central bankers to surprise markets, right? It’s just that you like it now, because the default expectation was sluggish NGDP growth?

  27. Gravatar of ssumner ssumner
    11. November 2014 at 14:51

    effem, You said:

    “I personally believe that as a social issue real rates should always be at least zero”

    And how do you propose to do that? And what’s special about zero? And why do you trust the CPI?

    Regarding real wages, I’m not denying that monetary policy may have reduced them, I’m saying it makes no sense to claim that monetary policy reduced real wages, but did not increase employment. How could that happen? And keep in mind that Japanese inflation is running 1% (excluding tax increases), so I hardly think inflation is the biggest problem facing Japanese workers.

    Mikio, I heard Abe might call an early election.

    John, I certainly agree that the supply-side problems in Japan are much more significant than the demand-side problems. But supply-side problems are inflationary, so I don’t understand your point there. BTW, America’s economy is also riddled with corruption and corporatism, albeit perhaps less than Japan.

    Bob, Yes. Just as I want Obama to surprise me with sensible economic policies. And just as I want you to surprise me by adopting market monetarism. 🙂

  28. Gravatar of Daniel Daniel
    12. November 2014 at 03:14

    John Becker & al

    This kind of bullsh*t argument is really old and really stupid.

    “Monetary policy may be bad, but we shouldn’t fix because there are also supply-side issues.”

    1. There will ALWAYS be supply-side issues.

    2. I wasn’t aware there was a trade-off between proper management of AD and good supply-side policies. \

    Carry on being intellectually dishonest.

  29. Gravatar of John John
    12. November 2014 at 08:19

    Keep slaying straw men and tilting at windmills Daniel.

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