Almost three years after taking the helm at the Bank of Japan, Gov. Haruhiko Kuroda has hinted that his view on the power of monetary policy has shifted, after an unprecedented stimulus program failed to achieve his inflation target.
"It's not that the monetary base alone will pull up inflation or inflation expectations promptly," Kuroda said in the Diet on Tuesday. "We aim to raise prices through an increase in inflation expectations and a tighter gap in supply and demand under QQE," he said, referring to qualitative and quantitative easing measures.
The remarks contrast with the optimism Kuroda showed as he began his record monetary stimulus program in April 2013, when he made a monetary-base expansion target the centerpiece of his strategy. Three years ago he said this tool was "the most appropriate" way to achieve his 2 percent inflation goal and that "monetary policy alone" can achieve this.
While Kuroda this month repeated that monetary policy alone can achieve the price target — regardless of the government's progress in strengthening the economy — he has added a negative interest rate policy to his monetary arsenal.
Deputy Gov. Kikuo Iwata, sitting next to Kuroda during the Diet session, advocated the monetary base target three years ago. Iwata said Tuesday that central bankers should be accountable for not achieving their targets and should resign if they cannot justify the reasons.
Kuroda has more than doubled the monetary base in three years, yet Japan's consumer prices, excluding fresh food, rose only 0.1 percent in December and have hovered around zero percent since May.
Kuroda has been forced to bolster his monetary program twice in a bid to end Japan's deflationary mindset. On Tuesday, he pledged to continue his stimulus program until attaining the 2 percent target.