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Hideaki Miyajima
Professor of Graduate School of Commerce at Waseda University, Tokyo, Director of Waseda Institute for Advanced Study (WIAS) and Faculty Fellow at Research Institute of Economy, Trade and Industy (RIETI)
In light of a continuing European debt crisis and uncertainty in the financial markets, Dukascopy has interviewed Hideaki Miyajima, Professor of Finance at Waseda University, Tokyo, in order to find out more about Japan's long-term growth and Bank of Japan's monetary policy.
1) What is your view on the Japan's current economic situation and the economy's long-term growth?
The current situation is not so good due to the impact of the earthquake in March 2011. Meanwhile, the Japanese economy is in a process of recovery, although, the increasing exchange rate to both the Euro and the US Dollar signifies bad news for the Japanese economy. The export-oriented industry has been a subject to a lot of troubles recently, as a new report released by Japanese Ministry of Economics and Trade claims. It is stated in the report that the production level of the Japanese economy is diminishing as the Japanese economy is struggling with a slowdown.
On average, the economic forecasts of the Japanese economy's growth are ranging from the highest reaching 2.2% and the lowest being around 1%. I personally believe that the negative economic impact of the earthquake has been disappearing and in the next year the economic growth would be positive, around 1–1.5%.
Obviously, European economy is going to face a much bigger crisis in the next year which will lead to troubles to the Japanese economy through a decline of exports to the European continent as well as the emerging markets. The emerging economies together with Japan, will be inevitably hit in case of the severe recession of the Euro area.
2) Do you consider that Japan should seek alternative growth promotion tools in addition to the zero interest rate policy?
Japanese interest policy is based on the zero rate. Currently the nominal interest rate in Japan is 0.1%, while the deflation rate remains negative. Given this, we can say that the substantial interest rate is positive and not critically low in a real sense. Nevertheless, it constitutes a problem for Japanese Bank of Financial Industries as because of the constraint of its interest rate no room is left to operate in or significantly decrease the interest rate.
The increasing high exchange rate level is historically very high. As you know, Finance Minister intervened into shrinking exchange market several times in an attempt to decrease the rate as Japanese businesses required the Japanese government to handle the trouble.
Then again, in my opinion, without any cooperation with G7 or G8 countries the financing of the intervention in the exchange rate market is not likely to take place. Independent interventions of the Japanese government do not make that much sense, in other words, they are ineffective.
Another alternative which I find more preferable was suggested by the former Vice president of the Bank of Japan. He stated in his proposal that Bank of Japan may construct a fund for buying Euro bonds by using bank of Japan's own account. This kind of plan would be beneficial both in terms of stabilising the government bond market in the Euro area, as well as a useful measure to slash the exchange rate.