Former governor of the Bank of Japan Haruhiko Kuroda shared his experience guiding Japanese macroeconomic policy and inflation targeting in a seminar hosted by the Weatherhead Center for International Relations on Monday afternoon.
The talk was moderated by Christina L. Davis ’93, professor in the Department of Government and director of the Harvard University Program on U.S.-Japan Relations. It was co-sponsored by the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School, the Harvard Kennedy School Japan Caucus, the Harvard Undergraduate Japan Policy Network, and the Japan Society of Boston.
Kuroda, who served as the governor of the Bank of Japan from 2013 to 2023, currently holds a position as a professor at the National Graduate Institute for Policy Studies in Tokyo.
During his tenure at the Bank of Japan, Kuroda oversaw the nation’s recovery in the wake of the lost decade, a period of stagnation following an asset crash in the early 1990s, and the global financial crisis.
“During the time of Prime Minister Shinzo Abe, many of us heard and studied a set of policies that were referred to as Abenomics. These were a core strategy to help spur economic growth in Japan after decades of low growth after the bursting of the bubble,” Davis said.
“Mr. Kuroda was the architect of the second arrow of Abenomics, focused on monetary expansion,” Davis added.
Kuroda said his goal was to target an inflation rate of two percent after a painful 15-year period of deflation. To achieve this goal, Kuroda introduced quantitative and qualitative easing, an expansionary monetary policy that reduced interest rates and expanded the money supply to stimulate economic growth.
“The market responded initially quite positively,” Kuroda said.
Davis said that Kuroda’s “unorthodox” policies of quantitative and qualitative monetary easing set a “new standard for creativity in banking policy.”
She said his governorship “completely reshaped our thinking about monetary and central banking policies.”
Still, Kuroda said difficulties remained.
A “huge increase in commodity prices” associated with the Covid-19 pandemic and the war in Ukraine caused the Japanese yen to depreciate, Kuroda said. Though he tried to prevent currency depreciation exacerbated by an increase in energy prices, the depreciation was persistent.
Nevertheless, Kuroda said that the increase in prices had allowed Japan to reach the inflation target.
“Ironically, not by the 10-year expansionary monetary policy, but by the war in Ukraine, Japanese inflation rates reached two percent,” he said.
Furthermore, Kuroda highlighted the fact that recent wage increases in Japan were the highest in the last 30 years. This, he said, increased the Bank of Japan’s confidence that the two percent inflation target is sustainable.
Kuroda said that his policy had clear positive outcomes — including the “promotion of women’s active engagement in professional life” — despite the difficulties of evaluating economic policies in a vacuum.
“In the last 10 years, more than four million new jobs were created, particularly for women,” he said.
Kuroda also pointed to record corporate profits as a positive sign.
“Japan’s corporate sector is currently enjoying historical high levels of profit,” he said. “Higher than during the bubble period.”
“Corporate profit doubled compared with the inflationary period,” he added.
Overall, Kuroda said he is “more hopeful about the future” of the Japanese economy.
“The economy is doing quite well and investment is increasing substantially,” he said. “The Japanese economy is now in the sort of good situation never seen in the last five years.”