27/05/2016 Talking Business

Now on BBC News, Talking Business.

Japan has tried it all.

Negative interest rates and even possibly handing out free cash.

With a sluggish economy, what policy tools does Japan have left?

As the country hosts the Group of Seven Leaders meeting this week

to discuss global growth, we talk to the man in charge

of growth at home, the central bank governor Haruhiko Kuroda.

Welcome to Talking Business.

I've come to Sendai to speak with the man in charge of steering

Japan's economy on the sidelines of the G7 meetings.

Parts of the city were destroyed during the 2011 tsunami and it's

been chosen as a location for some of these meetings

because it is an example of Japan's resilience

and reconstruction efforts.

But Japan's efforts to rejuvenate its economy

haven't been as successful.

Earlier this year, it implemented negative interest rates.

The theory is that it should have weakened the yen and got consumers

and companies spending again, but that didn't happen.

The yen strengthened and consumption has slowed down.

So when will negative interest rates start having an impact

in the real economy?

A question I put to the Japanese Central Bank governor,

Haruhiko Kuroda.

Yes, after we announced the policy, initially the yen appreciated

and the stock market rose for two days and thereafter,

the market almost reversed.

But these are the outcomes of global financial markets.

You say that it is going to take time.

That's right.

But how much time does Japan have?

It's not one year or two years, it's a matter of months.

We introduced the new policy in January this year

and we are now in May.

I think, already, as I said, major impact on the financial

markets, we can see.

And the impact will spread to the real economy in due course.

I am quite sure that this new policy will have stimulated

an impact on the economy.

I don't think we have to wait half a year or a year or two years.

I don't think so.

You think we'll see an impact from negative interest rates

by October?

Before that.

And what happens if this policy measure, if it doesn't do

as you intended?

How much further will you go and what options do you have left?

I think that our economic policy is not targeted to exchange

rates or real GDP growth.

Monetary policy is targeted to inflation rate and our

inflation rate target is 2%.

At this moment, the inflation rate is close to zero but underlying

inflation trend show slightly more than 1%.

Compared with 2% target, we're only halfway.

So we think that under the current policy framework, inflation rate

will gradually accelerate and reach the target some time

in the next fiscal year.

But if we decide another additional measure in order to achieve

the target, we will mobilise the three dimensions, quantity,

quality and interest rate.

Do you feel that the burden of fixing the economic problems

in Japan has been placed solely on you?

I must say that Bank of Japan certainly has been making very

accommodating monetary policy to achieve inflation targets

while the government has been utilising fiscal policy

for short-term fiscal stimulus and the government is on track

to achieve prosperity.

Do you wish that the government was doing more?

I think the government is doing exactly appropriately, as far

as fiscal conservation is content.

Now, you mention a third element, structural reforms.

Yes, certainly, some structural reforms have already been made

but some others are awaiting to be implemented.

So are you satisfied with the rate at which structural

reform has been taken?

It is very difficult.

I am satisfied with significant impact on the economy,

but I still think that there are many structural reforms

to be done, including labour market reform,

Social Security reform and TPT, which is Trans Pacific Free Trade

agreement, agreed among 12 countries, including

the US and Japan.

The United States has come out with a statement saying that all G7

countries should refrain from competitive currency devaluation.

In the past they have put Japan and China on a currency watchlist.

What is your reaction to this and has the issue of currency

caused a rift between you and the United States?

Bank of Japan is not involved in exchange-rate policy

or exchange rate intervention.

I know that among the G20 or G7 or whatever, it is agreed that

competitive devaluation must be avoided.

But at the same time, excessive fluctuation or exchange

rate not reflecting economic fundamentals, are not good

for the economy, fortunately.

Exchange rate policy or intervention are not, as far as Japan

is concerned, the responsibility of the central bank and also

I understand in the US or UK, this issue is in the hands

of finance ministry and not the central bank.

Is the ammunition running out and what options do central banks

have now given that these controversial monetary

policy tools don't appear to be working any more?

You see, I think that, not just in the US but also

in the Eurozone as well as Japan, monetary policy has been making

significant positive impact on the economy,

the recovering of the economy.

Avoiding serious disinflation or inflation.

So, in that sense, monetary policy has worked.

I don't think at this stage, monetary policy has reached

the limit, I don't think so.

I think still we have enough room to further

these monetary conditions.

Policy tools are high on the G7 agenda this year but corporate Japan

says they are simply not enough to boost growth on their own.

Structural reforms need to be sped up and the government needs

to do more.

We'll be talking about all of that in just a minute

with a panel of guests.

But first, what actually happens at these global summit behind

the media spotlight?

Well, our comedy consultant has been pondering that question.

Whenever I see on the news that the G7 are meeting,

I can't help wondering what goes on behind closed doors.

Now, scandalously, I have failed to be invited yet

again to a G7 meeting, so in order to help me

answer the question, I have created my own

global council of leaders, consisting entirely of me.

It's the C7.

C7.

Sorry I'm late.

I have a few questions about these high-powered global meetings.

Are there serious disagreements between the members?

I want the truth.

You can't handle the truth.

Are there are secret alliances between others?

How does translation work?

Don't worry, guys, I can speak all of your languages.

One second.

OK, the G7 is obviously a lot more than a lot of men wearing the same

suit but different ties.

So, I've talked to somebody else who knows a lot more on the topic.

Hugh Dobson is Professor of Japanese Studies

at Sheffield University

and he has written extensively on the G7 and also on Japan.

Japan's traditional role in the G7 can be understood in two ways.

First of all, the status that being a member brings to Japan

as a contemporary power.

The other important role is that Japan is the only Asian country

that is a member of the G7,

so it assigned itself the role of representative of Asia.

Obviously, there's important business at hand as the leaders can

the global perspective.

It is an informal mechanism.

It doesn't have the legitimacy or the legal status

of the United Nations.

It doesn't have the mechanism to enforce any decisions

that it might make.

But the idea is that it's about informally, intimacy.

Informality?

That suits me fine.

But when it comes to hosting the G7, all these international summits,

Japan does put on a show.

Sort of like the Olympics.

Economics and Olympics.

That is not a bad analogy.

Some economists like aritifical stimulus, some Olympians

like artificial stimulants.

China will be hosting the G20.

Both countries will be making efforts to ensure that the summit

they are respectively hosting is regarded as the main

show in town.

It is a double mechanism of reinforcing the G7's position

and downplaying the G20 position.

Because he G20 challenges all those aspects of the G7

that Japan holds dear.

Its status as a great power and Asian representative.

That is it from my report.

Time to network and chill.

If you enjoyed that report, you can catch more of his

material on our website.

Now, back to the topic at hand.

Earlier you heard from Haruhiko Kuroda, the Central Bank

governor of Japan about his plans to revitalise Japan's economy.

But what does corporate Japan make of this?

I'm joined by the CEO of Standard Chartered Bank of Japan,

the GMS global adviser and the Japan Institute

of International affairs.

Haruhiko Kuroda said that negative interest rates

will have an impact on the real economy in the next fiscal year.

Do you think that's realistic?

I do believe that negative interest will have a positive impact over

that time and I do hope it will come out in a visible manner

by the end of this year, but monetary policy is not

the only factor.

We have uncertainties.

Brexit and the Chinese economy slow-down and US interest-rate hike.

So, it will have an impact but the overall economy

needs to go forward.

Monetary policy, as we have been discussing, is not the only arrow

within the strategy to boost growth in Japan.

Structural reforms are very much a part of this and part

of that is to include more women in the workforce.

Do you think that is happening?

The administration initially set two targets related to women.

The first one is to have at least one woman on the board of directors

of companies and that aspect, yes, it has started to increase.

And the second target was to create a society in which women can

continue working after marriage and in which the infrastructure,

including nursery facilities, would be dramatically increased.

In this aspect, yes, to a certain extent,

it has hit the target.

Do you think it is happening fast enough, for actual

structural changes to be made within the economy?

The Prime Minister saying that now the Japanese government is to push

this element forward has created a mindset among Japanese CEOs

that they can do that.

So it's a very positive impact.

Let's talk about that mindset change.

Within corporate Japan, there has appeared to be some

resistance to change.

What is taking them so long to alter their mindset?

If your company is making a cautious decision.

On aggregate, the corporate sector as a whole, it doesn't look

like it is changing rapidly.

They are investing heavily overseas.

Look at the high level of emergent acquisition,

particularly in Southeast Asian countries.

Japanese and these are during very much.

But when it comes to issues like the wage, they tried

to accommodate the government push, but because of an opaque external

economic environment, I think that this year,

the wage hike is sort of fizzling out and this is not only corporate

Japan but throughout the world.

While corporate Japan is investing overseas, as we have been

discussing, it's not doing the same back at home in Japan.

In fact, companies are sitting on piles of cash

and not raising wages.

They are not creating new jobs or making new investments here at home.

Why is that and what needs to be done to get them to change?

GDP number does not necessarily capture the real shape

of the Japanese economy.

As you mentioned, corporate Japan continues to be investing overseas

and the domestic economy has peaked.

Why aren't the going to spend some of those profits here in Japan?

Management of corporate Japan is taking a very cautious approach

and they are also reluctant to incur the cost because their first

responsibility is to deliver their dividend

to shareholders, so that is the right decision on a micro level

but in terms of our entire economy it is not working well.

What can be done to boost productivity in the labour market

Everybody is watching each other.

If someone does it and is successful, everybody follows.

Once the change starts, usually, Japanese aggregate corporate

world will move forward.

Even in the productivity area, right now, as I mentioned,

the Japanese companies are now moving one step ahead

and increasing diversity, related to women and non-Japanese,

and basically we have realised that unless we change,

long working hours and the productivity, the male culture,

women cannot succeed.

Do you feel that too much burden has placed on Mr Kuroda to fix

the economy when everything that we have talked about really has

to do with structural reforms, corporate Japan taking more

of an active role and far less to do with monetary policy.

It is not just him.

The central bankers have been placed in a sort of very difficult position

because the other options, the fiscal policy, structural

policies, need to catch up with this rapid change in monetary policy.

The other possibility of introducing new types of fiscal managers,

-- The other possibility of introducing new types

of fiscal measures,

for instance, supporting families with younger children,

I think some head of fiscal support may be needed and the structural

adjustment policies, the TPT, this could make an impact.

But apart from that, there are still many

areas that need reforms.

Do you think that Japan is on the right track

and what is the biggest risk to the economy going forward?

We see the right trend, such as the introduction

of the corporate governance code and it will help to improve

the health of corporate Japan, but you mentioned that culture,

Japanese people in the mind and nature, nobody wants to be

so different from others, so that Japan is a highly

homogenous society.

That makes some risks.

Corporate Japan makes decision similar to others and decision

making needs to be improved.

Briefly, I would like to ask you all, is Japan

moving on the right track

and what is the biggest risk to the economy moving forward?

I think it is going in the right direction and I think it's up

to the administration whether they can basically

keep their promises that they have made, but my feeling

of the risk is geopolitical, rather than all these

powers and North Korea.

It is more a political risk that we are facing in Japan

rather than economic.

Structural reforms do require a stable political environment.

And of course there are external factors that are very, very big.

We do not know what is going on in China, we don't know

what to happen in the United States or in Europe.

For instance, breaks, we do not know.

-- For instance, Brexit, we do not know.

But nonetheless, as far as Japan is concerned,

the political situation is very stable and this

will continue for another couple of years at minimum so we have

to take advantage of this space of political stability.

Thank you all for joining us with your insights.

That's it for this episode of Talking Business.

Next week, Talking Business will be in Mumbai to look at the challenges

working women face in India.