TOKYO (Reuters) - Japanese Prime Minister Shinzo Abe hand-picked the country’s central bank chief. But his administration is inching away from Bank of Japan Governor Haruhiko Kuroda’s elusive inflation target, seeking to deflect criticism that the signature policy has been a failure.
Kuroda’s “bazooka” stimulus – deployed in 2013 – was a key pillar of the premier’s pro-growth policies, which became known as “Abenomics.” The plan consists of “three arrows”: bold monetary easing, flexible fiscal spending and structural reforms to boost Japan’s growth potential.
Back in 2013, Abe praised Kuroda’s pledge to hit 2% inflation in two years and argued that the only way to eradicate deflation was to have the BOJ print money more aggressively. The policy of radical easing helped revive the economy and reduce the jobless rate. But inflation hasn’t come close to the BOJ’s target as companies remain wary of raising wages, leaving households cautious of boosting spending.
Abe is now distancing himself from the inflation target. Instead, he emphasizes the need to spur growth and create jobs. “It’s true the BOJ has yet to hit its 2% inflation target,” he told parliament in June. “But the real purpose of having this target is, for example, to create jobs and achieve full employment. In that sense, I think monetary policy has achieved its purpose.”
Finance Minister Taro Aso went so far as to say in March that he didn’t think “anyone in the general public is angry” that the inflation target hasn’t been achieved.
The remarks contrasted with those by Kuroda, who has consistently said achieving the bank’s price target is a priority and that the side-effects of his stimulus are manageable. Without directly pointing fingers at the government, Kuroda has also called for progress on Abe’s pledge to make deep structural reforms in the economy. In the absence of deeper reforms, analysts say, the central bank has been forced to maintain loose monetary policy for longer than expected.
The shift in the government’s tone underscores growing public concerns over the diminishing returns and rising costs of prolonged monetary easing.
Even the architects of Abenomics are backtracking. Koichi Hamada, an economic adviser to the premier who helped craft Abenomics, now questions the need to achieve 2% inflation.
“I think it can be abandoned. It isn’t absolutely crucial,” Hamada told Reuters, of the BOJ’s 2% target. “Prices don’t need to rise much. From the perspective of people’s livelihood, what’s more desirable is for prices to fall, not rise.”
Reporting by Leika Kihara. Edited by Peter Hirschberg.