The Bank of Japan (BOJ) has again revised downward its forecast of consumer prices. The central bank now predicts that Japan will achieve the goal of 2 percent annual inflation sometime around fiscal 2018, about a year later than predicted this past July.
This is the fifth time that the BOJ has postponed the timing of achieving a 2 percent inflation rate, effectively admitting that it is difficult for the country to attain the target during BOJ Gov. Haruhiko Kuroda's five-year term.
Under the leadership of Kuroda, the BOJ declared three years and seven months ago that Japan would achieve a 2 percent inflation target within about two years and launched large-scale credit easing to that end. As part of this monetary policy, the central bank has purchased about 40 percent of outstanding government bonds, thereby supplying a massive amount of money to the economy. Nevertheless, the inflation rate remains negative.
The BOJ comprehensively evaluated its policy in September and analyzed its failure to attain the inflation target. The central bank pointed out that consumer prices had declined because of a rapid fall in crude oil prices and the deterioration of economic conditions in emerging countries, and that the Japanese people's predictions of consumer prices tend to be influenced by the current consumer price situation due to a prolonged period of deflation.
The BOJ believed that if the amount of money supplied to the economy were drastically increased, people would believe that consumer prices would go up, which would lead to actual price rises. This scenario has been proved wrong, but the central bank has not acknowledged the mistake.
BOJ Deputy Gov. Kikuo Iwata told a news conference when he assumed his post that if the central bank attributed its failure to achieve its target to other factors while defending its own monetary policy, markets would lose confidence in the policy. This is what is actually happening to the central bank now.
However, questions remain as to whether the BOJ is solely to blame for the failure to achieve the inflation target.
The Liberal Democratic Party (LDP) incorporated the 2 percent inflation target in its campaign pledge for the House of Representatives election in late 2012. The LDP, which was then an opposition party, was aspiring to return to power by pledging to overcome deflation.
The government of Prime Minister Shinzo Abe went on to incorporate the 2 percent inflation target in a joint statement with the BOJ in January 2013 shortly after taking over the reins of government even though that target was too high in light of the condition of the Japanese economy.
The BOJ's massive monetary easing policy was the first of the "three arrows" of the Abenomics economic policy mix promoted by the Abe government. The Abe administration appointed those willing to carry out such monetary easing policy to the central bank's Policy Board.
The target has not only been out of reach but the achievement date has been postponed repeatedly. The latest target date is sometime around 2018, six years after the goal was set. However, economists in the private sector view even the latest goal as overly optimistic. The government must fulfill its accountability for failing to live up to its promise to the public -- one that the government had emphasized.
While demanding that the BOJ overcome deflation at an early date, the government pledged to rehabilitate debt-ridden state finances, saying that the government would "establish a sustainable fiscal structure." Nonetheless, the government has postponed the consumption tax increase from the current 8 percent to 10 percent twice, and the scale of the state budget has ballooned to the largest-ever level.
The risk that financial markets will lose confidence in Japan's state finances and the market prices of government bonds will plummet as a result, dealing a serious blow to the Japanese economy, has heightened to an unprecedented level. It is irresponsible for the government to continue the policy, which has obviously failed, without scrutinizing it.