Wolff, Β. G. (2014) “Lessons from the Bank of Japan for the euro area – Q3 data seem to confirm the fear that the Bank of Japan would miss its target“, Bruegel Institute, 18 Νοεμβρίου.
The decision of the Bank of Japan end of October 2014 to significantly expand its asset-buying programme came as a surprise. The yen weakened and stock markets rallied. The decision taken with only a small majority by the board of the Bank of Japan was taken to show the resolve of the BoJ to increase inflation expectations so that inflation eventually moves to two percent. It was feared that after the consumption tax hike, the inflation expectations would be dampened too much and the Bank of Japan would miss its target. The just released Q3 data seem to confirm that fear. Governor Kuroda was explicit on the aim to change the mindset of the public arguing that “… we could face a delay in eradicating the public’s deflation mindset”.
Which lessons can the euro area and the European Central Bank draw from this recent episode of Japan’s monetary policy? I would emphasize three central lessons. The first lesson is that it is very difficult to change inflation expectations and get the public move from a deflation to an inflation mindset. This is a very important lesson for the ECB. Inflation expectations in the euro area have fallen already significantly. Five-year ahead inflation swaps signal a rate of about 1% instead of the official target of the ECB of close but below two percent. The ECB needs to avoid that markets lose even more confidence in the ECB to achieve its target. The more inflation expectations get disanchored, the more difficult it will become for the ECB to change them again. The BoJ had to step up an already very large quantitative easing programme. If the ECB wants to prevent such a scenario, it should be bolder with its policies now to ensure that inflation expectations revert quickly back to the target.
Σχετικές αναρτήσεις:
- Gilbert, Μ. (2014) “ECB Needs Japanese Lessons“, Bloomberg View, 05 Νοεμβρίου.
- Walker, M. (2014) “Europe Is Closely Studying Lessons from Japan – They Fear Euro Zone Is Falling Into Similar Lethargy”, The Wall Street Journal, 29 Ιουνίου.
- Fubini, F. (2013) “Europe’s Japan?“, Project Syndicate, 20 Σεπτεμβρίου.