Japan's top leaders defend 'Abenomics' economic strategies as roiled markets settle

TOKYO – Japan’s top leaders are defending the economic strategies championed by Prime Minister Shinzo Abe, though the central bank chief acknowledged a need for better communication with financial markets, a day after Tokyo shares suffered their worst loss since the 2011 tsunami disaster.

Bank of Japan Gov. Haruhiko Kuroda acknowledged Friday the need for careful handling of aggressive monetary policies aimed at breaking the world’s third-largest economy free of deflation, or falling prices, that has hobbled growth by slowing investment and consumer spending.

“We are undertaking very flexible market operations and interest rate volatility should be curbed as much as possible,” Kuroda told a regional conference in Tokyo, a day after 10-year government bond yields breached 1 per cent for the first time in a year. By Friday afternoon they were at about 0.83 per cent, near their recent trading level.

“Communication and dialogue with the markets should be strengthened,” Kuroda said. “The markets should be stabilized through various channels as we work on the wider economy to establish a favourable growth cycle, and prices should rise gradually.”

Kuroda, Abe and other officials said they will stick to the “Abenomics” program of extreme monetary stimulus, government spending and reforms aimed at reviving growth after two decades of stagnation.

The central bank is buying some 70 per cent of all new Japanese government bonds as it pumps money into the economy, aiming to double the volume of cash in circulation and bank reserves and push prices higher. Kuroda launched the program in early April, saying he expected it would help keep long-term bond yields low. But as investors have shifted their portfolios out of bonds and into the booming share market, yields have actually risen, adding to worries over the eventual costs Japan will face in managing its huge public debt.

On Thursday, dismal manufacturing data from China coupled with the concerns about Abenomics triggered a sell-off in Tokyo, where the Nikkei 225 fell 7.3 per cent, as investors cashed in on recent gains. Shares gyrated Friday, first rising, then falling and then rebounding to close 0.9 per cent higher, at 14,612.45.

Abe told a parliamentary session Friday that the government was keeping a close eye on the markets. But he said Japan would “firmly proceed with measures to ensure sustainable government finances and secure market confidence.”

The aim is to bring about long-term improvements, said Finance Minister Taro Aso.

“Japan’s credibility will increase if it can end prolonged deflation” through Abe’s policies, he told reporters.