0:00:00 > 0:00:04Now on BBC News, Talking Business.
0:00:04 > 0:00:07Japan has tried it all.
0:00:07 > 0:00:10Negative interest rates and even possibly handing out free cash.
0:00:10 > 0:00:14With a sluggish economy, what policy tools does Japan have left?
0:00:14 > 0:00:18As the country hosts the Group of Seven Leaders meeting this week
0:00:18 > 0:00:21to discuss global growth, we talk to the man in charge
0:00:21 > 0:00:31of growth at home, the central bank governor Haruhiko Kuroda.
0:00:49 > 0:00:51Welcome to Talking Business.
0:00:51 > 0:00:55I've come to Sendai to speak with the man in charge of steering
0:00:55 > 0:00:59Japan's economy on the sidelines of the G7 meetings.
0:00:59 > 0:01:01Parts of the city were destroyed during the 2011 tsunami and it's
0:01:01 > 0:01:07been chosen as a location for some of these meetings
0:01:07 > 0:01:09because it is an example of Japan's resilience
0:01:09 > 0:01:13and reconstruction efforts.
0:01:13 > 0:01:15But Japan's efforts to rejuvenate its economy
0:01:15 > 0:01:16haven't been as successful.
0:01:16 > 0:01:19Earlier this year, it implemented negative interest rates.
0:01:19 > 0:01:22The theory is that it should have weakened the yen and got consumers
0:01:22 > 0:01:26and companies spending again, but that didn't happen.
0:01:26 > 0:01:30The yen strengthened and consumption has slowed down.
0:01:30 > 0:01:32So when will negative interest rates start having an impact
0:01:32 > 0:01:34in the real economy?
0:01:34 > 0:01:37A question I put to the Japanese Central Bank governor,
0:01:37 > 0:01:39Haruhiko Kuroda.
0:01:39 > 0:01:48Yes, after we announced the policy, initially the yen appreciated
0:01:48 > 0:01:52and the stock market rose for two days and thereafter,
0:01:52 > 0:01:59the market almost reversed.
0:01:59 > 0:02:09But these are the outcomes of global financial markets.
0:02:11 > 0:02:13You say that it is going to take time.
0:02:13 > 0:02:14That's right.
0:02:14 > 0:02:16But how much time does Japan have?
0:02:16 > 0:02:19It's not one year or two years, it's a matter of months.
0:02:19 > 0:02:24We introduced the new policy in January this year
0:02:24 > 0:02:27and we are now in May.
0:02:27 > 0:02:31I think, already, as I said, major impact on the financial
0:02:31 > 0:02:35markets, we can see.
0:02:35 > 0:02:42And the impact will spread to the real economy in due course.
0:02:42 > 0:02:47I am quite sure that this new policy will have stimulated
0:02:47 > 0:02:51an impact on the economy.
0:02:51 > 0:02:59I don't think we have to wait half a year or a year or two years.
0:02:59 > 0:03:00I don't think so.
0:03:00 > 0:03:02You think we'll see an impact from negative interest rates
0:03:02 > 0:03:03by October?
0:03:03 > 0:03:06Before that.
0:03:06 > 0:03:10And what happens if this policy measure, if it doesn't do
0:03:10 > 0:03:12as you intended?
0:03:12 > 0:03:17How much further will you go and what options do you have left?
0:03:17 > 0:03:21I think that our economic policy is not targeted to exchange
0:03:22 > 0:03:23rates or real GDP growth.
0:03:23 > 0:03:33Monetary policy is targeted to inflation rate and our
0:03:34 > 0:03:41inflation rate target is 2%.
0:03:41 > 0:03:45At this moment, the inflation rate is close to zero but underlying
0:03:45 > 0:03:55inflation trend show slightly more than 1%.
0:03:55 > 0:03:58Compared with 2% target, we're only halfway.
0:03:58 > 0:04:05So we think that under the current policy framework, inflation rate
0:04:05 > 0:04:10will gradually accelerate and reach the target some time
0:04:10 > 0:04:12in the next fiscal year.
0:04:12 > 0:04:22But if we decide another additional measure in order to achieve
0:04:24 > 0:04:34the target, we will mobilise the three dimensions, quantity,
0:04:34 > 0:04:37quality and interest rate.
0:04:37 > 0:04:41Do you feel that the burden of fixing the economic problems
0:04:41 > 0:04:44in Japan has been placed solely on you?
0:04:44 > 0:04:53I must say that Bank of Japan certainly has been making very
0:04:53 > 0:04:57accommodating monetary policy to achieve inflation targets
0:04:57 > 0:05:01while the government has been utilising fiscal policy
0:05:01 > 0:05:08for short-term fiscal stimulus and the government is on track
0:05:08 > 0:05:17to achieve prosperity.
0:05:19 > 0:05:21Do you wish that the government was doing more?
0:05:21 > 0:05:24I think the government is doing exactly appropriately, as far
0:05:24 > 0:05:28as fiscal conservation is content.
0:05:28 > 0:05:29Now, you mention a third element, structural reforms.
0:05:29 > 0:05:36Yes, certainly, some structural reforms have already been made
0:05:36 > 0:05:40but some others are awaiting to be implemented.
0:05:40 > 0:05:42So are you satisfied with the rate at which structural
0:05:42 > 0:05:44reform has been taken?
0:05:44 > 0:05:49It is very difficult.
0:05:49 > 0:05:52I am satisfied with significant impact on the economy,
0:05:52 > 0:05:56but I still think that there are many structural reforms
0:05:56 > 0:06:03to be done, including labour market reform,
0:06:03 > 0:06:08Social Security reform and TPT, which is Trans Pacific Free Trade
0:06:08 > 0:06:09agreement, agreed among 12 countries, including
0:06:09 > 0:06:19the US and Japan.
0:06:20 > 0:06:23The United States has come out with a statement saying that all G7
0:06:23 > 0:06:29countries should refrain from competitive currency devaluation.
0:06:29 > 0:06:33In the past they have put Japan and China on a currency watchlist.
0:06:33 > 0:06:36What is your reaction to this and has the issue of currency
0:06:36 > 0:06:46caused a rift between you and the United States?
0:06:46 > 0:06:48Bank of Japan is not involved in exchange-rate policy
0:06:48 > 0:06:52or exchange rate intervention.
0:06:52 > 0:06:56I know that among the G20 or G7 or whatever, it is agreed that
0:06:56 > 0:06:58competitive devaluation must be avoided.
0:06:58 > 0:07:03But at the same time, excessive fluctuation or exchange
0:07:03 > 0:07:07rate not reflecting economic fundamentals, are not good
0:07:07 > 0:07:14for the economy, fortunately.
0:07:14 > 0:07:20Exchange rate policy or intervention are not, as far as Japan
0:07:20 > 0:07:25is concerned, the responsibility of the central bank and also
0:07:25 > 0:07:31I understand in the US or UK, this issue is in the hands
0:07:31 > 0:07:36of finance ministry and not the central bank.
0:07:36 > 0:07:39Is the ammunition running out and what options do central banks
0:07:39 > 0:07:41have now given that these controversial monetary
0:07:41 > 0:07:46policy tools don't appear to be working any more?
0:07:46 > 0:07:50You see, I think that, not just in the US but also
0:07:50 > 0:07:55in the Eurozone as well as Japan, monetary policy has been making
0:07:55 > 0:08:02significant positive impact on the economy,
0:08:02 > 0:08:09the recovering of the economy.
0:08:09 > 0:08:16Avoiding serious disinflation or inflation.
0:08:16 > 0:08:21So, in that sense, monetary policy has worked.
0:08:21 > 0:08:23I don't think at this stage, monetary policy has reached
0:08:23 > 0:08:25the limit, I don't think so.
0:08:25 > 0:08:28I think still we have enough room to further
0:08:28 > 0:08:34these monetary conditions.
0:08:38 > 0:08:42Policy tools are high on the G7 agenda this year but corporate Japan
0:08:42 > 0:08:46says they are simply not enough to boost growth on their own.
0:08:46 > 0:08:49Structural reforms need to be sped up and the government needs
0:08:49 > 0:08:51to do more.
0:08:51 > 0:08:54We'll be talking about all of that in just a minute
0:08:54 > 0:08:55with a panel of guests.
0:08:55 > 0:08:59But first, what actually happens at these global summit behind
0:08:59 > 0:09:02the media spotlight?
0:09:02 > 0:09:08Well, our comedy consultant has been pondering that question.
0:09:08 > 0:09:11Whenever I see on the news that the G7 are meeting,
0:09:11 > 0:09:15I can't help wondering what goes on behind closed doors.
0:09:15 > 0:09:20Now, scandalously, I have failed to be invited yet
0:09:20 > 0:09:23again to a G7 meeting, so in order to help me
0:09:23 > 0:09:25answer the question, I have created my own
0:09:25 > 0:09:27global council of leaders, consisting entirely of me.
0:09:27 > 0:09:34It's the C7.
0:09:34 > 0:09:35C7.
0:09:35 > 0:09:40Sorry I'm late.
0:09:40 > 0:09:45I have a few questions about these high-powered global meetings.
0:09:45 > 0:09:47Are there serious disagreements between the members?
0:09:47 > 0:09:48I want the truth.
0:09:48 > 0:09:50You can't handle the truth.
0:09:50 > 0:09:52Are there are secret alliances between others?
0:09:52 > 0:10:02How does translation work?
0:10:03 > 0:10:07Don't worry, guys, I can speak all of your languages.
0:10:07 > 0:10:17One second.
0:10:21 > 0:10:24OK, the G7 is obviously a lot more than a lot of men wearing the same
0:10:25 > 0:10:26suit but different ties.
0:10:26 > 0:10:29So, I've talked to somebody else who knows a lot more on the topic.
0:10:29 > 0:10:30Hugh Dobson is Professor of Japanese Studies
0:10:31 > 0:10:31at Sheffield University
0:10:31 > 0:10:34and he has written extensively on the G7 and also on Japan.
0:10:34 > 0:10:38Japan's traditional role in the G7 can be understood in two ways.
0:10:38 > 0:10:44First of all, the status that being a member brings to Japan
0:10:44 > 0:10:48as a contemporary power.
0:10:48 > 0:10:51The other important role is that Japan is the only Asian country
0:10:51 > 0:11:00that is a member of the G7,
0:11:00 > 0:11:03so it assigned itself the role of representative of Asia.
0:11:03 > 0:11:05Obviously, there's important business at hand as the leaders can
0:11:05 > 0:11:06the global perspective.
0:11:06 > 0:11:10It is an informal mechanism.
0:11:10 > 0:11:12It doesn't have the legitimacy or the legal status
0:11:12 > 0:11:13of the United Nations.
0:11:13 > 0:11:15It doesn't have the mechanism to enforce any decisions
0:11:15 > 0:11:19that it might make.
0:11:19 > 0:11:28But the idea is that it's about informally, intimacy.
0:11:28 > 0:11:29Informality?
0:11:29 > 0:11:30That suits me fine.
0:11:30 > 0:11:33But when it comes to hosting the G7, all these international summits,
0:11:33 > 0:11:34Japan does put on a show.
0:11:34 > 0:11:35Sort of like the Olympics.
0:11:35 > 0:11:36Economics and Olympics.
0:11:36 > 0:11:38That is not a bad analogy.
0:11:38 > 0:11:40Some economists like aritifical stimulus, some Olympians
0:11:40 > 0:11:47like artificial stimulants.
0:11:47 > 0:11:49China will be hosting the G20.
0:11:49 > 0:11:53Both countries will be making efforts to ensure that the summit
0:11:53 > 0:11:55they are respectively hosting is regarded as the main
0:11:55 > 0:11:58show in town.
0:11:58 > 0:12:01It is a double mechanism of reinforcing the G7's position
0:12:01 > 0:12:04and downplaying the G20 position.
0:12:04 > 0:12:09Because he G20 challenges all those aspects of the G7
0:12:09 > 0:12:10that Japan holds dear.
0:12:10 > 0:12:16Its status as a great power and Asian representative.
0:12:16 > 0:12:18That is it from my report.
0:12:18 > 0:12:19Time to network and chill.
0:12:19 > 0:12:25If you enjoyed that report, you can catch more of his
0:12:25 > 0:12:30material on our website.
0:12:30 > 0:12:35Now, back to the topic at hand.
0:12:35 > 0:12:37Earlier you heard from Haruhiko Kuroda, the Central Bank
0:12:37 > 0:12:40governor of Japan about his plans to revitalise Japan's economy.
0:12:40 > 0:12:45But what does corporate Japan make of this?
0:12:45 > 0:12:52I'm joined by the CEO of Standard Chartered Bank of Japan,
0:12:52 > 0:12:54the GMS global adviser and the Japan Institute
0:12:54 > 0:13:04of International affairs.
0:13:04 > 0:13:06Haruhiko Kuroda said that negative interest rates
0:13:06 > 0:13:09will have an impact on the real economy in the next fiscal year.
0:13:09 > 0:13:10Do you think that's realistic?
0:13:10 > 0:13:19I do believe that negative interest will have a positive impact over
0:13:19 > 0:13:22that time and I do hope it will come out in a visible manner
0:13:22 > 0:13:25by the end of this year, but monetary policy is not
0:13:25 > 0:13:27the only factor.
0:13:27 > 0:13:29We have uncertainties.
0:13:29 > 0:13:32Brexit and the Chinese economy slow-down and US interest-rate hike.
0:13:32 > 0:13:42So, it will have an impact but the overall economy
0:13:42 > 0:13:46needs to go forward.
0:13:46 > 0:13:52Monetary policy, as we have been discussing, is not the only arrow
0:13:52 > 0:14:02within the strategy to boost growth in Japan.
0:14:10 > 0:14:12Structural reforms are very much a part of this and part
0:14:12 > 0:14:15of that is to include more women in the workforce.
0:14:15 > 0:14:16Do you think that is happening?
0:14:16 > 0:14:18The administration initially set two targets related to women.
0:14:18 > 0:14:22The first one is to have at least one woman on the board of directors
0:14:22 > 0:14:25of companies and that aspect, yes, it has started to increase.
0:14:25 > 0:14:28And the second target was to create a society in which women can
0:14:28 > 0:14:30continue working after marriage and in which the infrastructure,
0:14:30 > 0:14:37including nursery facilities, would be dramatically increased.
0:14:37 > 0:14:40In this aspect, yes, to a certain extent,
0:14:41 > 0:14:50it has hit the target.
0:14:52 > 0:14:55Do you think it is happening fast enough, for actual
0:14:55 > 0:14:56structural changes to be made within the economy?
0:14:56 > 0:14:59The Prime Minister saying that now the Japanese government is to push
0:14:59 > 0:15:02this element forward has created a mindset among Japanese CEOs
0:15:02 > 0:15:03that they can do that.
0:15:03 > 0:15:05So it's a very positive impact.
0:15:05 > 0:15:08Let's talk about that mindset change.
0:15:08 > 0:15:13Within corporate Japan, there has appeared to be some
0:15:13 > 0:15:18resistance to change.
0:15:18 > 0:15:24What is taking them so long to alter their mindset?
0:15:24 > 0:15:26If your company is making a cautious decision.
0:15:26 > 0:15:36On aggregate, the corporate sector as a whole, it doesn't look
0:15:36 > 0:15:37like it is changing rapidly.
0:15:37 > 0:15:39They are investing heavily overseas.
0:15:39 > 0:15:43Look at the high level of emergent acquisition,
0:15:43 > 0:15:46particularly in Southeast Asian countries.
0:15:46 > 0:15:50Japanese and these are during very much.
0:15:50 > 0:15:55But when it comes to issues like the wage, they tried
0:15:55 > 0:15:57to accommodate the government push, but because of an opaque external
0:15:57 > 0:15:59economic environment, I think that this year,
0:15:59 > 0:16:09the wage hike is sort of fizzling out and this is not only corporate
0:16:10 > 0:16:20Japan but throughout the world.
0:16:23 > 0:16:29While corporate Japan is investing overseas, as we have been
0:16:29 > 0:16:39discussing, it's not doing the same back at home in Japan.
0:16:42 > 0:16:45In fact, companies are sitting on piles of cash
0:16:45 > 0:16:46and not raising wages.
0:16:46 > 0:16:49They are not creating new jobs or making new investments here at home.
0:16:49 > 0:16:52Why is that and what needs to be done to get them to change?
0:16:52 > 0:16:54GDP number does not necessarily capture the real shape
0:16:54 > 0:16:56of the Japanese economy.
0:16:56 > 0:17:00As you mentioned, corporate Japan continues to be investing overseas
0:17:00 > 0:17:10and the domestic economy has peaked.
0:17:11 > 0:17:14Why aren't the going to spend some of those profits here in Japan?
0:17:14 > 0:17:16Management of corporate Japan is taking a very cautious approach
0:17:16 > 0:17:19and they are also reluctant to incur the cost because their first
0:17:19 > 0:17:20responsibility is to deliver their dividend
0:17:20 > 0:17:23to shareholders, so that is the right decision on a micro level
0:17:23 > 0:17:33but in terms of our entire economy it is not working well.
0:17:38 > 0:17:48What can be done to boost productivity in the labour market
0:17:55 > 0:17:56Everybody is watching each other.
0:17:56 > 0:17:59If someone does it and is successful, everybody follows.
0:17:59 > 0:18:01Once the change starts, usually, Japanese aggregate corporate
0:18:01 > 0:18:05world will move forward.
0:18:05 > 0:18:12Even in the productivity area, right now, as I mentioned,
0:18:12 > 0:18:16the Japanese companies are now moving one step ahead
0:18:16 > 0:18:18and increasing diversity, related to women and non-Japanese,
0:18:18 > 0:18:24and basically we have realised that unless we change,
0:18:24 > 0:18:27long working hours and the productivity, the male culture,
0:18:27 > 0:18:37women cannot succeed.
0:18:40 > 0:18:43Do you feel that too much burden has placed on Mr Kuroda to fix
0:18:43 > 0:18:50the economy when everything that we have talked about really has
0:18:50 > 0:18:54to do with structural reforms, corporate Japan taking more
0:18:54 > 0:18:57of an active role and far less to do with monetary policy.
0:18:57 > 0:19:04It is not just him.
0:19:04 > 0:19:07The central bankers have been placed in a sort of very difficult position
0:19:07 > 0:19:14because the other options, the fiscal policy, structural
0:19:14 > 0:19:20policies, need to catch up with this rapid change in monetary policy.
0:19:20 > 0:19:33The other possibility of introducing new types of fiscal managers,
0:19:33 > 0:19:35-- The other possibility of introducing new types
0:19:35 > 0:19:36of fiscal measures,
0:19:36 > 0:19:38for instance, supporting families with younger children,
0:19:38 > 0:19:42I think some head of fiscal support may be needed and the structural
0:19:42 > 0:19:51adjustment policies, the TPT, this could make an impact.
0:19:51 > 0:19:53But apart from that, there are still many
0:19:53 > 0:20:01areas that need reforms.
0:20:01 > 0:20:04Do you think that Japan is on the right track
0:20:04 > 0:20:12and what is the biggest risk to the economy going forward?
0:20:12 > 0:20:21We see the right trend, such as the introduction
0:20:21 > 0:20:24of the corporate governance code and it will help to improve
0:20:24 > 0:20:33the health of corporate Japan, but you mentioned that culture,
0:20:33 > 0:20:37Japanese people in the mind and nature, nobody wants to be
0:20:37 > 0:20:42so different from others, so that Japan is a highly
0:20:42 > 0:20:45homogenous society.
0:20:45 > 0:20:55That makes some risks.
0:21:11 > 0:21:13Corporate Japan makes decision similar to others and decision
0:21:13 > 0:21:14making needs to be improved.
0:21:14 > 0:21:17Briefly, I would like to ask you all, is Japan
0:21:17 > 0:21:18moving on the right track
0:21:18 > 0:21:21and what is the biggest risk to the economy moving forward?
0:21:21 > 0:21:24I think it is going in the right direction and I think it's up
0:21:24 > 0:21:26to the administration whether they can basically
0:21:26 > 0:21:28keep their promises that they have made, but my feeling
0:21:28 > 0:21:30of the risk is geopolitical, rather than all these
0:21:30 > 0:21:37powers and North Korea.
0:21:37 > 0:21:40It is more a political risk that we are facing in Japan
0:21:40 > 0:21:40rather than economic.
0:21:40 > 0:21:43Structural reforms do require a stable political environment.
0:21:43 > 0:21:46And of course there are external factors that are very, very big.
0:21:46 > 0:21:56We do not know what is going on in China, we don't know
0:21:56 > 0:21:59what to happen in the United States or in Europe.
0:21:59 > 0:22:04For instance, breaks, we do not know.
0:22:04 > 0:22:06-- For instance, Brexit, we do not know.
0:22:06 > 0:22:10But nonetheless, as far as Japan is concerned,
0:22:10 > 0:22:12the political situation is very stable and this
0:22:12 > 0:22:15will continue for another couple of years at minimum so we have
0:22:15 > 0:22:21to take advantage of this space of political stability.
0:22:21 > 0:22:25Thank you all for joining us with your insights.
0:22:25 > 0:22:27That's it for this episode of Talking Business.
0:22:27 > 0:22:32Next week, Talking Business will be in Mumbai to look at the challenges
0:22:32 > 0:22:39working women face in India.