Focus on ‘Japanification’ stirs BOJ talk of policy review


The U.S. Federal Reserve and the European Central Bank have been reviewing their policy approach and inflation targets to avert “Japanification” – a term used to describe the country’s two-decades battle against deflation and anemic growth.

“There’s active debate on economic policies in Europe and the United States due to concern over prolonged low growth and inflation – so-called Japanification,” one of the BOJ’s nine board members said.

“While taking into account the government’s fiscal policy and growth strategy, it’s necessary to review monetary policy in Japan too, given prolonged low growth and low inflation,” the member was quoted as saying at the January meeting.

Another opinion shown in the summary, released on Wednesday, called on the need for policymakers to guard against the risk of Japan sliding into deflation again.

“Risks regarding the economy and prices remain high, so we must think about how to deal with the risk of another recession,” the member was quoted as saying.

At the January meeting, the BOJ kept policy steady and nudged up its growth forecasts on subsiding global risks. But Governor Haruhiko Kuroda stressed his resolve to keep policy ultra-loose on lingering global uncertainties.

Years of heavy money printing have failed to fire up inflation to the BOJ’s 2% target, forcing the bank to maintain its massive stimulus despite the hit from ultra-low interest rates to financial institutions’ profits.

The board is split between those who see room to ramp up stimulus and those wary of the rising cost of prolonged easing.

Some members warned of the side-effects of the BOJ’s policy, with one saying that lowering borrowing costs won’t boost the economy much because households and companies continue to save more than they spend, the summary showed.

Another member said negative interest rates could hurt inflation expectations by making households and companies gloomier on the economic outlook, according to the summary.

Under a policy dubbed yield curve control (YCC), the BOJ guides short-term rates at -0.1% and the 10-year government bond yield around 0%.


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