Contradictory times at the Bank of Japan

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Contradictory times at the Bank of Japan

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Even as the Bank of Japan’s new governor Haruhiko Kuroda is set to aggressively pump cash into the economy to revive it, he has warned that the country’s debt levels are “unsustainable”.

Kuroda has been brought in by new Prime Minister Shinzo Abe to back government stimulus measures, but one analyst is not hopeful that they will work:

Andrew Freris, Senior Investment Strategist for Asia with BNP Paribas Wealth Management, said: “My expectations are, unfortunately, this is exactly the same remedies we have been having in the last 15 years. Except this time they are multiplied, let’s say, by two. And I have my grave doubts whether they are going to be effective in changing structurally the Japanese economy, except providing a very welcome, but potentially short- to medium-term, boost to equity markets.”

Shares would rise with further stimulus, but so to would the risks of an economic bubble.

The central bank chief seems aware of that saying Japan’s public debt – at more than twice GDP – is “abnormal” as well as unsustainable, but apparently he is determined to push ahead anyway with what has been described as a monetary shock-and-awe campaign.

That is because Japan’s economy desperately needs answers. It is mired in low-grade deflation and has suffered four recessions since 2000. At the same time, an ageing population and weak consumption is gradually hollowing out much of the manufacturing base that provided the foundation for Japan’s modern economy.

Kuroda’s first scheduled policy meeting in charge of the Bank of Japan will be on April 3-4.