Bank of Japan Governor Haruhiko Kuroda has two main tools for reaching the 2 percent inflation target: asset purchases and psychology. On the latter, he wants Japan’s companies to feel they can raise prices and households to think that prices will rise soon, so they will rev up spending now.
He’s not achieving the intended target, yet he’s succeeding on the psychological front. Japanese consumers perceive that inflation is rising 5 percent, though core consumer prices actually fell 0.1 percent in August and have been slowing since June 2014. In a year’s time, they see prices climbing 3 percent.
And people are acting on that, with more and more homebuyers seeking fixed-rate mortgages to guard against the risk of higher interest rates, which may come if the central bank achieves its inflation goal.
Companies, too, see inflation accelerating, with an expectation that prices will increase 1.2 percent a year from now.
Kuroda said last month that these indicators, along with other data including the breakeven rate, were important for gauging price expectations. He said the trend for prices was rising over the longer term.