BOJ called on to clarify inflation goal

Bloomberg

The Bank of Japan should communicate its inflation goal more clearly, economy minister Motohisa Furukawa said as the central bank comes under pressure to halt deflation.

“It’s desirable for the BOJ to consider whether there’s a better way for the public to understand its inflation policy,” Furukawa said on NHK’s “Sunday Debate” program.

Opposition party members last month called for the central bank to emulate the Federal Reserve’s decision to set a firm inflation target of 2 percent. Furukawa’s remarks indicate the government wants the BOJ to take a more aggressive stance, while trying not to interfere with its independence, said Masamichi Adachi, senior economist at JPMorgan and Chase & Co.

“Furukawa’s comment is signaling some frustration within the government,” he said. “But it doesn’t mean that the government wants to risk the central bank’s policy by pushing too much.”

The central bank avoids setting an explicit inflation target and follows a policy whereby it has a so-called understanding of price stability that it aims for. The current view is for price stability to be a situation where the cost of goods rises between more than zero and as much as 2 percent, centered at about 1 percent.

BOJ policymakers have pledged to keep interest rates near zero unless they judge that “price stability is in sight.”

More harm than good?

The Bank of Japan’s policy of keeping interest rates near zero has failed to bolster economic growth and stimulus efforts may now be doing more harm than good, a Keio University professor said.

“Once you reach a certain point, magnifying policy stimulus further doesn’t always yield better results,” Kazuhito Ikeo, 59, an economics professor at the university, said Friday in Tokyo. “It’s perfectly possible those efforts could actually be detrimental.”

Opposition lawmakers have criticized the BOJ, calling on it to set clear policy goals like the Federal Reserve’s inflation target to help Japan overcome more than a decade of falling prices. Since cutting the benchmark interest rate near zero during the global financial crisis, the BOJ has expanded its balance sheet by buying financial assets.

BOJ Gov. Masaaki Shirakawa and the Policy Board will conclude a two-day meeting Tuesday in which economists say they will keep the key interest rate in a range between zero and 0.1 percent as well as maintain their ¥55 trillion asset-purchase and lending facility.