BOJ Chief Rejects Idea of Yen, Stock Bubble

BOJ Chief Rejects Idea of Yen, Stock Bubble

Kuroda Says He Will Press Ahead With Easing

TAKASHI NAKAMICHI

Nov. 22, 2013 1:45 a.m. ET

TOKYO—Bank of Japan Gov. Haruhiko Kuroda on Friday rejected the view that the central bank’s aggressive pumping of money into the economy is creating a stock market bubble and excessive yen weakness, instead stressing that he will press ahead with monetary easing to vanquish deflation. “I don’t think there is any bubblelike, abnormal yen weakness right now in the currency market,” Mr. Kuroda said during a parliamentary session when an opposition lawmaker accused the BOJ’s policy of merely causing bubbles in asset prices. “I have no particular concerns that a bubble may be in the making in the asset markets,” he added.Mr. Kuroda’s remarks came as his U.S. counterparts face similar questions at home, suggesting that members of the general public both in Japan and the U.S. are starting to worry more about negative side effects stemming from massive monetary easing. An overheating in asset prices could boost growth but often ends badly—just as Japan sank into a decades-long slump after its asset-and-land-price bubble popped in the early 1990s.

During a U.S. Senate confirmation hearing last week, Janet Yellen, the nominee to lead the Federal Reserve from next year, was asked by a lawmaker whether the Fed’s bond-buying program was pumping up the U.S. stock and real-estate markets. Ms. Yellen responded, “We have to watch this very carefully, but I don’t see this as an asset bubble.”

The BOJ launched an aggressive asset-buying program in early April, deciding to buy a whopping 70% of newly issued government bonds every month to reverse general price falls and bring about 2% inflation in two years. Japan’s stock market has since risen 25%, while the dollar has climbed nearly 10% to around ¥101.

Economists say the BOJ must be welcoming the recent rebound in share prices, which boosts consumption, and the weakening yen, which makes Japanese exports more competitive. That is especially so given that Japan’s domestic consumption will likely take a hit in April next year from a planned sales tax increase, and that emerging economies—a key market for Japan’s exporters—remain in the doldrums.

“The BOJ is very dependent on asset-price movements” to deliver its inflation goal, said Takehiro Noguchi, a senior economist at Mizuho Research Institute. Even if Japan’s asset markets begin to show signs of overheating, the bank may hesitate to step in to arrest them, he said.

On the question of whether a bubble is in the making in Japan’s stock markets, economists side with Mr. Kuroda for now.

“Corporate earnings have been growing, and this is positively reflected” by Tokyo stock markets, said Junko Nishioka, chief economist at RBS Securities, adding that Japanese stocks aren’t overpriced.

The Nikkei Stock Average marked an intraday high of 15,566.12 Friday, near this year’s high marked in May and almost 50% above where it started in January. The declining yen and the recent rise in U.S. stock prices to record highs have spurred demand for Tokyo shares. The Nikkei closed Friday up 0.1% at 15,381.72.

Mr. Kuroda reiterated that the BOJ will continue its easing program until 2% inflation firmly takes hold, and will take additional steps if “downside risks” to the price goal materialize.

On Thursday, at a news conference following the decision by the bank to stand pat on policy, Mr. Kuroda said there is “room to take policy action” if the economy diverges from the BOJ’s predicted path. This sparked debate in the market over whether he is leaning more toward further monetary loosening, even prompting some investors to sell the yen.

But economists keeping a close eye on BOJ policy said Friday that was just another way of him delivering the usual line that the bank would act if needed.

“I don’t think he made that comment thinking about a specific course of monetary policy action in the future,” said Yoshimasa Maruyama, a senior economist with Itochu Economic Research Institute.