BOJ Releases Triple Salvo of Research Saying Easing Is Working

The Bank of Japan released a triple salvo of reports concluding Governor Haruhiko Kuroda’s reflation strategy is working, a day after the central bank acknowledged it would fail to reach its original inflation-target timeframe.

The bank’s policies since 2013 have lifted trend inflation, stimulated the economy and been more effective in loosening financial conditions than previous stimulus rounds, according to the reports released on Friday. One of the these was an official statement, while the other two were opinions of bank officials.

A key part of the campaign by Kuroda and Prime Minister Shinzo Abe to end what they’ve termed a deflationary mindset among the Japanese is stoking confidence, and expectations for faster inflation. The risk is that if prices don’t pick up and without further policy action, such expectations wither -- requiring yet stronger steps by officials to force a change.

“The BOJ is aware that their communications are getting harder with inflation nowhere near their goal, so they are trying to provide some support by releasing these papers,” said Maiko Noguchi, an economist at Daiwa Securities Co. and a former official at the central bank. “I don’t think these will make their life easier as there’s no change in the fact that they’re far from the 2 percent target.”

Dramatic Change

The BOJ introduced its current easing policy in April 2013, pledging to achieve 2 percent stable inflation in “a time horizon of about two years.” Two years after that announcement, the BOJ’s key gauge showed inflation was 0.2 percent in March after touching zero in February.

“Changes in various economic and financial indicators have been in line with the mechanism” anticipated by the bank’s quantitative and qualitative easing policy, the BOJ said in its official report, which calculated that current policy had lowered real interest rates by about 1 percentage point through the end of last year from the first three months of 2013.

Policy since April 2013 has caused a “dramatic regime change” in lifting trend inflation above zero, according to one of the research reports by bank officials, which was cited by the official statement.

Even as the central bank was noting the effects of its policy, it also wrote that further work was needed. “In order to achieve the price stability target of 2 percent in a stable manner, a further rise in inflation expectations is necessary,” the official statement said.

“Due attention needs to be paid to how the decline in the actual inflation rate due to the sharp fall in crude oil prices will affect the inflation expectation formation,” the statement said. The bank expanded stimulus last October to counter the effects of a crash in oil prices and a sales-tax rise.

The central bank is desperate to influence expectations, and these papers released Friday are part of that campaign, according to Daiwa’s Noguchi.

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