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Inflation Targeting and Japan: Why has the Bank of Japan not Adopted Inflation Targeting?

In: The Future of Inflation Targeting

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Author Info

  • Takatoshi Ito

    (The University of Tokyo)

Abstract

The paper aims at explaining why the Bank of Japan has not adopted inflation targeting, despite calls for such a policy. Disclosed minutes of the Monetary Policy Meetings of the Bank of Japan, after March 1998, as well as Speeches by its members give clues to changing reasons against inflation targeting. Inflation targeting was not adopted in Japan in the early years (the first wave of interest in1999-2000) because the Board members were not sure about an appropriate price index, and a specific number for an appropriate inflation rate. A Bank of Japan study, completed in October 2000, did not give any clear answers. Inflation targeting was not adopted in later years (2001-2003), despite the inflation-targeting-like commitment strategy adopted in March 2001, because the Board members thought that conventional tools to increase the inflation rate were not available. As such, they thought that announcing a target with a positive inflation rate would damage confidence. In terms of introducing unconventional measures, the Bank of Japan worried about the transmission channels and the damage to its balance sheet. Towards the end of Governor Hayami fs term, the views against inflation targeting turned sharply negative, as news reports suggested that it may be linked to the new Governor fs appointment. Therefore, , why inflation targeting was not adopted, can be explained and understood from a political economy perspective.

(This abstract was borrowed from another version of this item.)

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This chapter was published in: Christopher Kent & Simon Guttmann (ed.) The Future of Inflation Targeting, Reserve Bank of Australia, pages , 2004.

This item is provided by Reserve Bank of Australia in its series RBA Annual Conference Volume with number acv2004-14.

Handle: RePEc:rba:rbaacv:acv2004-14

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Keywords: Japanese economic policy; inflation targeting;

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References

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Citations

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Cited by:
  1. Baltensperger, Ernst & Fischer, Andreas M. & Jordan, Thomas J., 2007. "Strong goal independence and inflation targets," European Journal of Political Economy, Elsevier, vol. 23(1), pages 88-105, March.
  2. Lukas Burkhard & Andreas M. Fischer, 2007. "Communicating Policy Options at the Zero Bound," Working Papers 2007-12, Swiss National Bank.
  3. Dai, Meixing & Sidiropoulos, Moïse, 2005. "Flexibility in inflation targeting, financial markets and macroeconomic stability," MPRA Paper 13864, University Library of Munich, Germany.
  4. Auerbach, Alan J. & Obstfeld, Maurice, 2012. "The Case for Open-Market Purchases in a Liquidity Trap," Center for International and Development Economics Research, Working Paper Series, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkele qt4tm5h0s3, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  5. Luca Colombo & Gerd Weinrich, 2006. "The Role of Expectations in a Macroeconomic Model with Inventories," Computing in Economics and Finance 2006, Society for Computational Economics 65, Society for Computational Economics.
  6. Takatoshi Ito & Frederic S. Mishkin, 2006. "Two Decades of Japanese Monetary Policy and the Deflation Problem," NBER Chapters, in: Monetary Policy with Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15, pages 131-202 National Bureau of Economic Research, Inc.
  7. Gerd Weinrich & Luca Colombo, 2005. "Money, Inventories and Underemployment in Deflationary Recessions," Computing in Economics and Finance 2005, Society for Computational Economics 156, Society for Computational Economics.
  8. Claudio Morana, 2004. "The Japanese Deflation: Has It Had Real Effects? Could It Have Been Avoided?," ICER Working Papers, ICER - International Centre for Economic Research 29-2004, ICER - International Centre for Economic Research.
  9. Tom Cargill & Federico Guerrero, 2006. "A ‘Second-Best’ Rationale to Deflationary Monetary Policy in Japan," Working Papers, University of Nevada, Reno, Department of Economics;University of Nevada, Reno , Department of Resource Economics 06-009, University of Nevada, Reno, Department of Economics;University of Nevada, Reno , Department of Resource Economics.
  10. Hiroyuki Taguchi & Woong-Ki Sohn, 2010. "Inflation Targeting and Pass-through Rate in East Asian Economies," Macroeconomics Working Papers 23115, East Asian Bureau of Economic Research.
  11. Tom Cargill & Federico Guerrero, 2006. "A Reassessment of the Problems with Interest Targeting: What Have We Learned from Japanese Monetary Policy?," Working Papers, University of Nevada, Reno, Department of Economics;University of Nevada, Reno , Department of Resource Economics 06-010, University of Nevada, Reno, Department of Economics;University of Nevada, Reno , Department of Resource Economics.

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