Deputy Prime Minister and Finance Minister Taro Aso's recent remark that the Bank of Japan (BOJ) should not stick to its goal of raising the annual inflation rate to 2 percent is astounding.
"The only ones sticking to the target are newspaper reporters, the BOJ and those who are well versed in such policy. It'd be inappropriate if we stuck to such a goal," Aso told a recent news conference.
This is despite the fact that Prime Minister Shinzo Abe and his aides have stuck to the 2 percent inflation target since before Abe began his second term as prime minister in late 2012.
Koichi Hamada, professor emeritus of economics at Yale University, whom Prime Minister Abe calls an economic expert and who has been appointed as a special adviser to the Cabinet, similarly said in an interview with Reuters that he does not think that the 2 percent target is absolutely necessary. He had previously suggested that Japan could set a 3 percent inflation target.
The Liberal Democratic Party (LDP) incorporated the 2 percent inflation target in its campaign pledge for the December 2012 House of Representatives election. In that election, Abe led the LDP -- the largest opposition party at the time -- to an overwhelming victory in the polls and came back to power for the second time following an earlier term from 2006 to 2007.
The LDP pledged to create a system to strengthen cooperation between the national government and the central bank in order to implement a bold credit easing policy. The LDP had even considered revising the BOJ Act to allow the government to dismiss its governor if the central bank failed to achieve an inflation target or take other action. The government thus overtly pressured the BOJ to accept the 2 percent inflation target and issued a joint statement with the central bank on the ultra-easy money policy.
BOJ Gov. Haruhiko Kuroda, who was appointed by the Abe government, even set a two-year deadline for achieving the inflation goal.
Six years have passed since then, but there is no prospect that the 2 percent target can be achieved in the foreseeable future.
The biggest problem is not that the central bank has failed to achieve the goal but that the BOJ cannot find a way out of Japan's abnormal credit easing policy because the Abe administration has stuck to the 2 percent goal, and Japan's financial and fiscal systems have been significantly distorted as a result.
Surely the government has not forgotten that achieving inflation by easing the central bank's monetary grip to an unprecedented level was the first of the "three arrows" of the Abenomics economic policy mix promoted by the Abe government.
If nobody in the government is now sticking to the 2 percent target as Aso maintains, then the administration should admit that its target was wrong, clarify why it failed to achieve the goal and provide a clear explanation to the public.
It would be impermissible for the government to declare that Abenomics is highly successful because it has drastically improved the employment situation, while placing the blame of failing to achieve the 2 percent inflation target on the BOJ.