Members of the Bank of Japan’s Policy Board are said to be at odds about where the rate of inflation ought to be over the medium to longer term.

In a scheduled meeting in late April, the nine member board reviewed what the BOJ calls its “understanding of medium- to long-term price stability.” This is BOJ jargon for a numerical range for consumer price inflation that it deems compatible with the notion of price stability. This range has now been set at a year-on-year 0 to 2 percent, according to statements from BOJ Gov. Toshihiko Fukui in a press conference earlier this month.

Yet according to records of that meeting, the policy board members are by no means united on where this inflation comfort zone ought to lie.

Some favored a 1 to 2 percent range, while others insisted on a range that would dip into negative inflation territory at its lower end.

One member is on record for calling for a range between minus 0.5 percent and 0.5 percent.

Price stability becomes a very elusive concept when its custodians differ to this extent on what is considered acceptable. The press seems to have enjoyed itself while needling Gov. Fukui on this point.

The other point that had the press running after the governor was the question of what this zone of price stability was actually supposed to mean in practical terms. Is this comfort zone, wherever it is supposed to be, a target for monetary policy or is it not?

In short, is the BOJ effectively on the way to adopting an inflation-targeting policy or isn’t it? This is the question on everyone’s minds.

Gov. Fukui insists that this is not the case. What he seems to be saying is that the comfort zone is a collective state of mind on the part of monetary policymakers regarding price stability. Actual price developments are checked against that state of mind to see if they are acceptable or not. It is a very surreal day when monetary policy enters the realm of the collective human consciousness.

All this is exquisitely fascinating. Yet in the final analysis, one is tempted to say, “Who cares?” For there is an important element that is quite conspicuous for its absence in this whole debate over price stability and the direction of monetary policy, and that element is the exchange rate.

I hasten to say that I am perfectly aware that exchange rates do not fall within the formal purview of the BOJ. As in many other countries, exchange rates are the province of the finance ministry.

Yet to the extent that central banks are supposed to be the guardians of the purchasing power of national currencies, it flies in the face of logic and of integrity as a policy institution to say the BOJ will not look at exchange rates as an important factor for consideration.

That, however, is actually Fukui’s stated position. He is on record as saying quite explicitly that exchange rates do not enter into his job description.

Technically, he is right of course. Yet it gives one a sinking feeling to learn that the custodian of the yen has no time to consider the external aspect of the currency’s value and purchasing power.

In this highly globalized world, price stability is increasingly and brutally at the mercy of the foreign-exchange market. For monetary policy makers to be arguing over simplistic numerical comfort zones of inflation under today’s circumstances seems futile in the extreme. It is about time the great collective consciousness focused itself on the greater picture.

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