Postponing Inflation Target Again

Bank of Japan decided to maintain its current monetary policy in its Monetary Policy Meeting on Thursday. Meanwhile, the bank postponed deadline for achieving 2% inflation target from the first half of FY 2017 to the end of FY 2017. Tokyo market, always hungry for surprising monetary policy, was immediately disappointed to the absence of additional monetary easing. Term of the Governor, Haruhiko Kuroda, is expiring April 2018, right after the end of FY 2017.

This is the fourth time for BoJ to postpone the target, which had originally been two years later from introduction of different dimension monetary easing in April 2013. Although the bank had been attributed the delay of achievement to steep decline of oil price, it added downward pressure of growth rate and wage hike as the reasons. It meant that ailing Japanese economy made getting rid of deflation difficult. “We will closely watch how policy effects are penetrating,” Kuroda explained why he avoided additional measure for monetary easing in his press conference on Thursday.

Disappointed to the meeting with no expected result, Nikkei Average in Tokyo Stock Market dropped by ¥600 to the level below ¥17,000. Value of Japanese yen grew as high as ¥107 against U.S. dollar, which marked ¥4 of hike from the time before the announcement of BoJ. Because the market had been asking additional monetary easing from last week, it is fair to say that they got furious to BoJ.

Why did the bank avoid further monetary easing? “We can explore the negative rate policy much more,” said Kuroda. However, there is an argument in overseas that Japan has been involved in the competition for cheap currency. If Japan explicitly sought further monetary easing, it is possible that the Western leaders will accuse Japan in Group 7 Summit in Japan later next month.

Private banks in Japan are frustrated with negative rate policy, because it damages balance of their management. Asset investment or individual consumption has not grown by the policy, because there is a little demand for investment or consumption. Some economists suppose that the inflation target cannot be achieved even at the end of FY 2017.

Kuroda insisted that he would take every necessary measure for achieving the target. It is likely that BoJ will decide further monetary easing in next meeting in June. As long as BoJ obtains a significant amount of Japanese governmental bonds in the market, expansion of money flow must be limited even BoJ takes further measures. Credibility of Kuroda bazooka is declining.