Kuroda talks challenges of demographic changes

Thursday, 17. January 2019 05:06

The aging and declining of a country's population does not necessarily push down macroeconomic and per capita growth rates, despite putting downward pressure on economic growth, Governor of the Bank of Japan (BoJ) Haruhiko Kuroda said, adding the growth could "be stimulated by promoting capital accumulation and innovation."

Speaking about the challenges of demographic changes at a G20 symposium in Tokyo, the head of the BoJ reasoned the decline will also have an impact on the country's saving and investment patterns, as well as international capital flows, as the declining population may be prone to spending their savings. However, the aging population will also increasingly strain the pension system, which may lead to a fiscal imbalance.

Commenting on the impact the changes will have on monetary policies, Kuroda stated a decline in long-term growth rates combined with a declining and aging population will lead to a decline in the natural rate, which will, in turn, put downward pressure on real interest rates. Because central banks in low-interest rate environment will face a greater risk of the zero lower bound problem, unconventional monetary policy measures such as negative interest rate policies and the lowering of longer-term must be used to tackle the issue.

"However, we need to carefully monitor and evaluate the effects of these unconventional measures on economic developments, prices, and financial conditions since the transmission mechanisms, benefits, and side-effects of these measures could be different from those of conventional monetary policy measures based on controlling short-term interest rates," Kuroda concluded.

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