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Bank of Japan’s Shirakawa: Aggressive money printing will not solve deflation problems

Masaaki Shirakawa

Masaaki Shirakawa

Masaaki Shirakawa, the outgoing governor of the Bank of Japan, said on Tuesday that there is no quick fix for an economy that has seen 15 years of deflation, adding that aggressive minting alone would be unsuccessful.

“A lack of cash isn’t what’s keeping companies from increasing capital expenditure,” Shirakawa said, according to Reuters. “If there was a single thing that would have cleared the fog and solved all problems, Japan wouldn’t have been in this situation for 15 years.”

His comments are in response to statements by incoming Governor Haruhiko Kuroda, Japan’s former currency chief, who said that the central bank can reach a two percent inflation target in two years if it continues to print more money.

Shirakawa repeated previous statements that in order for Japan to see more growth, deregulation and an increase in the working population should accompany a loose monetary policy to beat deflation. He said that past experiences in Japan and recent anecdotes from the U.S. and Europe indicate that there is no link between inflation and the size of an economy’s monetary base, Reuters reports.

Additionally, Shirakawa said that central banks may not be able to influence inflation expectations, warning against focusing on meeting market expectations.

“What may be desirable for market participants may not necessarily be the same as what is desirable for the economy in the long run,” Shirakawa said, according to Reuters. “I feel it is dangerous to believe that central banks can freely control market moves with words.”

While Shirakawa has been credited with protecting Japan’s economy from the market shocks occurring as a result of the recent financial crisis, he has been criticized for failing to end deflation.

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