The Bank of Japan’s Outlook for Economic Activity and Prices published today contains this amazing chart showing the Policy Board members’ forecasts of inflation:
Each Policy Board member made his/her forecast as a range and submitted two figures (i.e., the highest and lowest figures). The forecasts of the majority of the Policy Board members are shown as a range excluding four figures (namely the two highest figures and the two lowest figures among the forecasts submitted by the nine members).
Not a single BOJ Policy Board member expects inflation to exceed 1.5 percent for the next three years – even in the best case scenario!
Given that the BoJ has an inflation target of 2 percent, this is just amazing. Each BOJ Policy Board expects the BoJ will fail to do its job.
Given that they themselves don’t expect to hit the inflation target, how are markets supposed to expect the BoJ will achieve its target. Has nobody told them that monetary policy is almost all about expectations?
So how can the BoJ get inflation expectations up to 2 percent? Here’s an absolutely surefire way to do that:
- Announce the BoJ will start buying the average investor’s portfolio and not stop asset purchases until markets expect prices to rise at 2 percent.
- Start buying.
Even if this didn’t work and failed to reach the 2 percent inflation target, it would at least solve all of Japan’s other problems: the BoJ would end up owning the entire global stock of financial assets and the Japanese, having become the capitalist overlords of the rest of humanity, would never have to work again.
But rest assured that Japanese inflation expectations would be back on target long before that happened.