Bank of Japan Gov. Haruhiko Kuroda J is urging companies to do more to tackle deflation, a tacit admission that his massive money-printing exercise has failed and policymakers are losing faith in the point of delivering more of the same.
When Kuroda began the stimulus program in 2013, he said the Bank of Japan was responsible for generating inflation and shouldn’t make excuses for missing its target, but he now castigates companies for a “deflationary mindset” and not spending enough on wages and investment.
He had previously said the stimulus, known as quantitative and qualitative easing, was designed to change that mindset.
“It’s true that wages and inflation haven’t accelerated much, despite deploying such a huge stimulus program,” said a source familiar with the BOJ’s thinking. “In that sense, QQE hasn’t been a success yet.”
Japan’s core consumer prices fell 0.1 percent in the year to September, the second straight monthly decline, and BOJ officials admit the downward pressure from falling energy costs will persist until around the middle of next year.
Despite cutting both its growth and inflation forecasts last month, the bank made no further easing measures and is widely expected to keep its powder dry again at Thursday’s rate review.
“Top BOJ officials are clearly becoming aware that QQE isn’t working and that they are running out of policy ammunition,” said a former BOJ board member who retains close contact with policymakers. “That’s why they want to use their limited policy ammunition very cautiously.”
Kuroda has also appeared to backpedal on what he once said was his key mission to achieve 2 percent inflation as quickly as possible. More recently, he has talked of achieving “moderate” inflation, and the time-frame has slipped repeatedly.
BOJ officials still say they won’t hesitate to ease if risks threaten their price target, but there now appears little urgency, and there are considerable downsides to factor in.
The QQE program is already monopolizing the market for government bonds, drying up liquidity and pushing two-year yields negative.
Though nearly half of analysts polled by Reuters last week still think the BOJ will ease again in January, it is increasingly difficult to envisage what might trigger it.
The BOJ shrugged off cuts to its projections, and Monday’s data showing the economy slipped into recession are also unlikely to nudge officials, who have said a modest contraction in growth alone won’t lead to immediate easing.
Sources familiar with its thinking say it will consider easing only if weakness in overseas demand persists long enough to dent business confidence, hitting investment plans and discouraging wage rises.
“The threshold for monetary easing has become considerably high,” said Hideo Kumano, a former BOJ official who is now chief economist at Dai-ichi Life Research Institute. “Kuroda seems to be reverting to the old BOJ style, when policy decisions weren’t rule-based and were arbitrary.”