The Bank of Japan's tolerant intolerance

The Bank of Japan said today that:

The Policy Board does not tolerate a year-on-year rate of change in the CPI equal to or below 0 percent.

Hmmmm. Here are the current forecasts of all BoJ policy board members (board members make point estimates using market expectations of future interest rates).

In other words, the BoJ expects to tolerate deflation this year, next year and the year after. The statement today is being seen as a strengthened signal that interest rates will stay ‘lower for longer’, but given how unlikely that is to have any meaningful stimulative effect in Japan, it looks more like a manoeuvre to fend off political pressure without actually doing much.

Still, change at the Bank of Japan is not known for its rapidity, and the move today is another baby step towards a clear and binding inflation target.

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