IMF Says BOJ New Framework Shows Progress but Still Not Enough

The International Monetary Fund said on Monday that a new monetary policy framework adopted by the Bank of Japan marked “progress”, but stuck to its view that the central bank won’t be able to hit its ambitious 2 percent inflation goal anytime soon.

IMF Japan mission chief Luc Everaert made the remarks after the BOJ last week switched to targeting short- and long-term interest rates, and dropped its previous target of increasing base money at an annual pace of 80 trillion yen ($792 billion).

“We think that what happened on Sept. 21 is a good thing and welcomed that very much,” Everaert told a seminar in Tokyo, referring to the BOJ’s decision, which he said has removed a strict time horizon of achieving the inflation target.

“This new framework is a progress but that does not mean that the inflation target is going to be achieved much sooner than it otherwise would have,” he added.

With Japan struggling to break free of a long, debilitating phase of deflation despite the ultra-easy monetary policy adopted in April 2013, many economists have said that 2 percent inflation was an overly ambitious goal.

A senior BOJ official said the central bank’s new monetary policy framework should not be taken as a message that the BOJ feels it is done with easing, as it is aimed at strengthening the BOJ’s commitment to meeting its 2 percent inflation target.

“Our policy framework is more sustainable, but it doesn’t mean it will take longer to achieve 2 percent inflation,” Tomoyuki Shimoda, deputy director-general at the BOJ’s Monetary Affairs Department, told the seminar.

“There is no change to our strong commitment to achieve 2 percent inflation at the earliest possible time,” he added, echoing Governor Haruhiko Kuroda’s resolve to hit the price goal quickly.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza