It certainly looks that way to me. Last year, the BOJ came under increasing pressure from officials in the Abe government, who advocated lowering the inflation target to 1%. At the time it looked like the BOJ was ignoring this pressure, but now the signs of a switch look unmistakeable. Japanese NGDP expectations are almost certainly declining, as the yen soars in value and Japanese stocks plunge. Negative interest rates are another bearish sign. FT Alphaville has an interesting report:
The upcoming 27-28 April BoJ meeting is likely to push the authorities into finally admitting a plan to consolidate the JGB holdings into perpetual bonds alongside a formal move away from inflation targeting to nominal GDP targeting. There is a growing realization that there are effective limits to how much more JGBs can be acquired…
Although there is certainly room for deposit rates to be dropped further into negative territory and possibly the BoJ acquiring local government debt, there is growing realization that at some point the BoJ is likely to announce a ‘tapering of JGBs’ towards the end of 2016 or early 2017…
I’m skeptical that they will switch to NGDP targeting, or at least NGDP level targeting, which is what they really need. Perhaps Kuroda will pull another rabbit out of his hat, but I don’t think it’s likely. If it was likely, the yen never would have appreciated so strongly. Given that the current inflation target is not credible, it would be rather pointless to switch to NGDP growth rate targeting, which would be equally lacking in credibility.
What should Japan do? I suppose they should do whatever they want to do. It doesn’t make much sense to target inflation at 2% if you don’t want to target inflation at 2%.
The more interesting question is what should they want to do? I’d say NGDPLT. But they seem to have other ideas.
Either way, we should have an answer by the end of the month.
HT: Tyler Cowen
PS. Here’s the dollar (in yen terms):
And here’s the Nikkei: