Optimism swept BOJ as inflation goal looked nearer, yen weak in 2014
![](images/demo-img8.jpg)
(KPL/KYODO NEWS) The Bank of Japan's decision-making body was dominated by optimism that the likelihood of attaining its 2 percent inflation goal had increased in 2014, a year after it launched unorthodox monetary easing, the minutes of past policy meetings released Tuesday showed.
Then BOJ chief Haruhiko Kuroda was in the optimistic camp, as he vowed to achieve 2 percent inflation in around two years' time by providing massive monetary stimulus, which weakened the yen and boosted share prices. The weaker yen also boosted import costs for resource-scarce Japan.
But inflation subsequently eased in line with the fading effects of cost-push factors as crude oil prices fell. Domestic demand was not strong enough to support continued price hikes in the aftermath of a consumption tax increase in 2014, forcing the BOJ to postpone the goal. Kuroda's stint as governor ended in 2023 without the target being achieved.
The BOJ releases detailed minutes of its policy meetings a decade after they are held. The latest batch of minutes, covering the period from January to June 2014, comes as the central bank has grown more confident about the possibility of achieving its long-elusive inflation goal, this time supported by robust wage growth.
It is moving to normalize policy, while keeping close tabs on the effects of a stubbornly weak yen, a by-product of years of ultraeasey monetary policy and the economy's low growth potential.
Supporters of powerful monetary easing, notably Kuroda himself, were confident that flooding the economy with ample funds would boost economic growth and help Japan end its fight with deflation.
In April 2014, Japan saw a 1.5 percent year-on-year increase in consumer prices, with the weaker yen boosting import prices for energy. At a policy meeting held on April 30 of that year, the nine-member board discussed their inflation forecasts for the following years.
The board was inclined to forecast that core consumer prices, a key gauge of inflation, would rise 1.9 percent in fiscal 2015 and then 2.1 percent in fiscal 2016.
"The likelihood (of achieving the goal) is rather increasing," Kikuo Iwata, who served as one of the deputy governors, was quoted as saying at the meeting. Another member Yoshihisa Morimoto struck a similar note, saying that inflation would reach 2 percent in fiscal 2015 "and move stably thereafter."
While the outlook was released after the meeting, three members had expressed skepticism, according to the minutes.
Takahide Kiuchi, now executive economist at the Nomura Research Institute, was quoted as saying that inflation would slow in line with the fading effects of the weaker yen, while Sayuri Shirai projected that attainment of the 2 percent goal would not come until fiscal 2016, the minutes showed.
Six months later on Oct. 31, the BOJ decided to further ease monetary policy to shore up inflation.
While the current board under Kazuo Ueda, who took over the job from Kuroda, is pinning its hopes on a positive cycle of pay and price hikes, the governor has acknowledged the difficulty of forecasting inflation.
The BOJ has scrapped its negative interest rate policy and yield cap program, both key features of the Kuroda era. It is now moving toward tapering government bond buying, with an eye to trimming its balance sheet that includes more than half of outstanding government debt. If the yen's weakness accelerates inflation, the BOJ will not rule out raising interest rates, Ueda has said.
The yen has hit its lowest level in over three decades relative to the U.S. dollar and weakened to levels unseen since the euro was introduced in 1999. The weakness of the Japanese currency is driving up inflation by boosting import costs and threatening to further cool consumer sentiment.