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Economy

BOJ's Kuroda rules out 'helicopter drop'

BOJ Gov. Haruhiko Kuroda fields questions in Tokyo on April 28. (Photo by Keiichiro Asahara)

TOKYO -- Bank of Japan Gov. Haruhiko Kuroda has nixed the idea of deploying "helicopter money" in Japan, claiming that such measures are illegal under the country's constitution.

Helicopter money is financial lingo for giving free cash to households and businesses, instead of lending it to them at very low rates. The idea has been floated in market circles as another step the BOJ could take to inject life into the Japanese economy.

Speaking to reporters after the central bank's two-day policy board meeting, Kuroda dismissed such talk. "Helicopter money is a policy where monetary and fiscal measures become one," he said. "But developed countries have learned through history to keep monetary policy and fiscal policy separate, with the central bank taking charge of the former and the government the latter."

He added: "I don't think [helicopter money] can be adopted under the current legal system."

On the other hand, Kuroda stressed his willingness to push monetary policy further, suggesting the BOJ could cut interest rates deeper into negative territory. The bank decided in its January meeting to impose a negative rate of 0.1% on some excess reserves it holds for financial institutions. "If we deem it necessary, we will take additional easing measures in terms of three dimensions," Kuroda said, referring to quantitative and qualitative actions along with negative interest rates.

Unaddressed pressures

The BOJ was forced to cut its forecasts for Japan's economic growth and inflation again during Thursday's meeting, after similar moves in January. The bank pushed back the time frame for achieving its 2% inflation target, but Kuroda put on a bold face, saying: "The virtuous cycle [from income to spending] is maintained. The mechanism for inflation to rise to 2% is still working."

Junichi Makino, chief economist at SMBC Nikko Seurities, wrote that the BOJ's decision to stand pat "is a negative, in that it left the strengthening of deflationary pressures unaddressed."

"Inflation expectations are falling but the essence of the BOJ's quantitative and qualitative easing program was supposed to be raising inflation expectations," Makino continued. "Future monetary policy has become unclear."

The financial markets did not react well to the central bank's decision. The yen surged 3.2% against the dollar on the day, momentarily breaking through the 108 line. The Nikkei 225 index, which had risen as much as 1.6% in early trading, erased its gains and ended the day 3.6% lower.

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