When the Bank of Japan launched the most aggressive monetary easing in modern history a decade ago, authorities were hoping the experiment would be over in about two years, given concerns over the “shock and awe” approach, according to the full minutes of the policy meetings from that era.
(Bloomberg) — When the Bank of Japan launched the most aggressive monetary easing in modern history a decade ago, authorities were hoping the experiment would be over in about two years, given concerns over the “shock and awe” approach, according to the full minutes of the policy meetings from that era.
In the first gathering under then Governor Haruhiko Kuroda in April 2013, the central bank chief took the unusual step of focusing the course of policy discussions only on achieving a price target of 2%, according to the minutes released Monday.
“We will do everything we can,” Kuroda said. “We should avoid deploying our fire power in incremental steps and aim to achieve the target at the earliest time possible. Specifically, I have about two years in mind.”
Kuroda, handpicked by then Prime Minister Shinzo Abe, was widely expected to depart from the BOJ’s existing approach that critics at the time called “too little, too late.” The yen and stocks were already reflecting expectations for a big shift at the bank.
Yet Kuroda’s plan didn’t pan out. He was forced to address side effects from prolonged monetary easing in the last years of his term, and stepped down in April as the longest serving governor in the BOJ’s history without having achieved his goal.
More than a decade from the bazooka launch, the central bank is finally starting to see green shoots emerge toward achieving its target while also observing upside inflation risks. Current Governor Kazuo Ueda cited those reasons Friday when explaining why the BOJ added further flexibility to its yield curve control program.
Read More: BOJ’s Surprise Foreshadows End to Key Anchor for Global Yields
Most of Kuroda’s fellow board members supported him back in 2013, but many also noted their concerns over the “shock and awe” stimulus approach, the minutes showed. Takahide Kiuchi even voted against specifying the 2-year goal for reaching the bank’s price target.
Takehiro Sato, one of the nine board members at the time, said this massive easing has an aspect of “gambling.” Koji Ishida, another member, said he would have to ask for a revision in a year’s time if the policy didn’t have visible impacts.
“There is no way that we will carry on for years and years without a limit,” Ryuzo Miyao, another member, said.
The members also discussed the definition of a 2% inflation target and mostly agreed that it’s a flexible goal with allowance for deviation.
It can deviate by 1 percentage point on the upside and downside, but it’s vital to keep a commitment to maintaining it around 2% stably in the mid term, Kikuo Iwata, then deputy governor, said at the 2013 meeting.
“There is no change in my understanding that this is a flexible inflation target,” Ishida said at the gathering.
That suggests there’s been some changes to how the price goal is understood over the years. Last week Ueda stressed the need for monetary stimulus, even though the bank’s latest quarterly price projections largely showed inflation at around 2% for the three years through fiscal 2025, after rising 3% last year.
The governor reiterated he isn’t confident enough that price gains will pick up after an expected slowdown later this year. The definition of the inflation target is likely to be a key topic going forward, especially if prices continue to be stronger than expected.
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