Japan PM Admits BOJ May Fail 2% Inflation Target

April 2, 2013Japanby EW News Desk Team

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After months of rhetoric calling for bold monetary easing from the Bank of Japan (BOJ), Japanese Prime Minister Shinzo Abe on Tuesday admitted that the BOJ’s 2 percent inflation target may be difficult to accomplish; and warned the BOJ to not pursue the benchmark “at all cost”, especially if global conditions change.

“The economy is a living thing and we don’t know what will happen around the world,” said Abe in response to a question in parliament, as cited by Bloomberg.

“What is important is to aim steadily for the target,” he said.

The Japanese PM was speaking just a day ahead of former Asian Development Bank head Haruhiko Kuroda’s first policy meeting as the BOJ governor. Kuroda was appointed last month after pledging to undertake aggressive monetary easing, as recommended by Abe.

“Though Kuroda has pledged to achieve 2 percent inflation, given Japan’s reality, this is an extremely tough goal” and Abe is aware of that, said Mikihiro Matsuoka, chief economist at Deutsche Securities Inc. in Tokyo, to Bloomberg.

“Under the target, the BOJ will keep expanding stimulus and its actions will help to weaken the yen, boost profits and stimulate economic growth - that’s what Abe may want to see ultimately,” Matsuoka added.

The markets also retreated off the yen this week as concerns grew that the BOJ might not live up to expectations. According to the Wall Street Journal, the yen is up 3 percent since hitting a three-year low against the dollar three weeks ago. Investors buying the currency are also betting that the BOJ won’t announce major new policies at the end of its two-day meeting on Thursday.

“It would be almost impossible for the BOJ to do enough to please equities markets," told Adam Fisher, chief investment officer at Commonwealth Opportunity Capital, to WSJ.

"Expectations leading up [to the meeting] were very high," added Mitsuhiro Ozawa, deputy general manager of the investment-planning department at Aioi Nissay Dowa Insurance Co. "I think it will be difficult for them (the BOJ) to exceed those expectations."

The BOJ will meet from April 3-4 two-day meeting to discuss their next policy steps to reverse virtually 15 years of deflation.

Related: Japan Records Fourth Straight Year Of Deflation

Related: Returning The Reserves: Why Japan Must Focus On Consumption Not Investment

Related: The Return Of Abenomics: A New, Old Hope For Japan’s Economy?

Kuroda told a parliamentary committee on Tuesday that Japan "must achieve" the target "as soon as possible,” pledging to “adopt bold monetary easing policies that would meet (market) expectations.”

"It is not easy to break out of 15 years of deflation… [but] it is important that we show a strong commitment to mobilising all the policy measures that the Bank of Japan has and doing everything possible, and that we explain this to markets appropriately" to stoke growth,” Kuroda said.

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