LONDON -- The governor of the Bank of Japan, Masaru Hayami, and the majority of the BOJ's policy council have drawn criticism from the Japanese government and leaders of Japanese industry for the decision to end the BOJ's zero-interest-rate policy. These criticisms have been echoed in the British press. The Financial Times headed its main leader on Aug. 12 "Folly of Japan's true believers." A major article in the same paper, headed "Japan's gesture," declared that the decision bore "little relation to economic necessity and may hurt the world economy." The BOJ's arguments in support of its change of direction on monetary policy have been declared flimsy and unconvincing.
The consensus of economic forecasts for the Japanese economy is said to be that consumer prices will continue to fall, and the BOJ's statement that "the economy has reached the stage where deflationary concern has been dispelled" is dismissed as unfounded. The BOJ's decision is regarded primarily as an attempt to assert its independence from government and therefore as essentially a political ploy.
When there is such a strong consensus against the BOJ, it may be rash for an ex-diplomat to question the general view, but, while the decision may seem perverse in light of the current state of the Japanese economy, it is surely right to ask whether the collective wisdom of the BOJ is as wrong-headed as critics allege.