Time to Relent on 2%? Japan Debates Inflation Target

Monetary authorities galore have set inflation targets of around 2%, including the U.S. Federal Reserve, the European Central Bank and the Bank of England. But none has done so with as much gusto as the Bank of Japan, where Governor Haruhiko Kuroda vows to do whatever it takes to reach that goal. While Kuroda has helped pull Japan’s economy out of a spell of deflation, he’s still years away from fueling the amount of inflation that he craves. In fact, it’s taken so long to get less than halfway there that the government’s commitment to the 2% target is starting to waver as the side effects of Kuroda’s stimulus pile up.

The BOJ agreed with the government to set its inflation target at 2% in January 2013, less than a month after Prime Minister Shinzo Abe came to power with a plan to revitalize a moribund economy. In Japan and many other developed countries, prices rising by 2% a year is seen as optimal for encouraging companies to invest and consumers to spend. It’s also thought to be low enough to avoid the risk of sparking runaway inflation.