In an exclusive interview with Emerging Markets, Haruhiko Kuroda insisted that Abenomics was still on track for success.
He acknowledged that structural reform had not yet had the “significant impact” that the first arrow of monetary policy and the second arrow of fiscal policy had done on the Japanese economy.
“The government [of Japanese prime minister Shinzo Abe] has been making efforts and those efforts will bring about results — but it takes time,” Kuroda said.
Addressing what — alongside China’s slowdown — has become the hot issue in financial markets, Kuroda said that, on the whole, Abenomics had been working and performing as intended.
“Financial markets including the foreign exchange markets, the stock market and the debt market [in Japan] have been performing as may have been expected,” he said.
“More importantly, the real economy has been recovering moderately, and particularly domestic demand has been quite strong. Last year, domestic demand contributed about 3% of [Japan’s] GDP growth while net exports contributed negatively. So GDP growth was not so high but still higher than Japan’s potential growth rate.
“We expect that this situation will continue in the next couple of years — in fiscal 2014 and 2015 as well as 2016. So I think that Abenomics as a whole has been successful and will continue to be.”
As for the third arrow of Abenomics, “even if it is completely successful it will be slow in working, by definition. Changing [Japan’s] economic structure requires time.”
He insisted that the government had already made a “substantial commitment”. In the last session the Diet, the Japanese parliament, passed nine bills to make various structural reforms and in the current session the government intends to submit 30 bills to further implement reform. “On top of that, it will compile a revised second growth strategy by June this year.”
He voiced “cautious optimism” that China would be able to manage the major structural reforms that it was undertaking while still maintaining annual economic growth rates of around 7.5% in the short to medium term.
“As far as the short term outlook is concerned, the Chinese economy is quite okay,” he said. “I think that 7.5% growth is likely to be achieved this year as well as next year because the Chinese government has made it clear that while pursuing structural reforms in various sectors of the economy they want at the same time keep economic growth stable at around 7.5%.
“They have enough fiscal and monetary policy space, and also regulatory policies, [for them] to maintain stable growth for the next couple of years. In the long run, the Chinese economy will continue to slow down but for the short term outlook I am cautiously optimistic.”
Kuroda meanwhile stressed that the BoJ and the European Central Bank both needed to “continue with a very loose and accommodative monetary stance for some time to come” in order to ensure that global economic recovery remained on track.