TOKYO (Reuters) – The Bank of Japan is caught in a bind, nearly two years into its stimulus experiment, as it further qualifies its inflation goals in response to tumbling oil prices, a move that could prove self-defeating by tempering price expectations.
In April 2013, the BoJ pledged to achieve its 2 per cent inflation target in “about two years” under Governor Haruhiko Kuroda’s monetary easing policy, a campaign to print money at an unprecedented scale in Japan.
The bold, simple pronouncement with a clear time-frame drove down the yen and boosted stocks, reinforcing the initial impact of the easing programme, which is aimed at lifting Japan clear from two decades of crippling deflation.
Though the timeframe remains official policy, in practice it has been slipping over the horizon, and now officials are adding another layer of atmospheric haze with a more convoluted assessment of what kind of inflation they are measuring.
The shifting of goalposts is a recognition that several factors, most recently the collapsing price of oil, are pulling inflation away from the BoJ’s target, forcing it to keep adding footnotes to complicate – and some would say obscure – what had been a simple, clear policy commitment.
After all, two years have nearly passed, and core consumer inflation, the BoJ’s key price gauge, is only a quarter of the bank’s target, and is expected to slow further in the coming months.
In the first year of the easing campaign, known as QQE, the presentation panels Kuroda used in public appearances marked in bold the magic number “2”, to demonstrate his determination to hit the two-year, 2 per cent target and nudge people into spending.
“QQE aims to show the BoJ’s strong, clear commitment to end deflation to wipe out people’s deflationary mindset,” Kuroda told a speech in September 2013. “We therefore … set a clear deadline to hit the target, which is roughly two years.”
A year later, in the face of a weakening economy, the BOJ fudged the time goal to “around fiscal 2015”, which effectively opened the window to at least March 2016.
Kuroda stopped mentioning the two-year timeframe in public from around September last year, when oil price falls were in full swing.
The simple became yet more complex when the BOJ expanded QQE in October, blaming oil for slowing inflation, only to stand pat in January when oil prices kept falling.