MacroScope

Yellen-san supportive of BOJ’s aggressive easing

April 5, 2013

For all the talk about clear communications at the Federal Reserve, central bank Vice Chair Janet Yellen’s speech to the Society of American Business and Economics Writers ran a rather long-winded 16 pages.

However, while Fed board members generally do not take questions from reporters, there was a scheduled audience Q&A which, at this particular event, meant it was effectively a press briefing.

So I asked Yellen, seen as a potential successor to Fed Chair Ben Bernanke when his second term ends early next year, what she thought of Japan’s decision to launch a bold $1.4 trillion stimulus to fight a long-standing problem of deflation and economic stagnation.

This is what she said:

I prefer not to comment on the details of what the Bank of Japan announced. But I’d certainly say that here’s a country that’s suffered deflation for well over a decade and had very weak economic growth.

When you contemplate the fact that nominal income, nominal GDP in Japan today is slightly lower than it was I think 20 years ago – I mean that’s really remarkable and has resulted in all kinds of problems for Japan. So I really think that taking an aggressive approach to try to end deflation is something I certainly understand.

She said central banks around the world, including the Fed, had been forced to take unusual measures to combat economic weakness throughout the developed world. “That’s something that’s completely appropriate,” she said.

Yellen also cited international support for such measures:

About a month ago the group of seven nations issued a statement saying we really think it’s entirely appropriate for countries to use domestic policy tools to promote key domestic policy objectives like trying to achieve full employment and price stability.

What Japan is doing is something that’s in their own best interest, it’s something that if successful will be good for stimulating growth in the global economy and it will be good for us too.

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