Ex-BOJ chief likened inflation goal to constitution: 2012 minutes

An inflation goal for a central bank carries the same weight as a constitution for a country, former Bank of Japan Governor Masaaki Shirakawa said at a policy meeting in 2012, underscoring the significance of adopting a target, an issue that was being debated at the time, minutes showed Friday.

Leading up to the BOJ's meeting on Feb. 14, 2012, Japanese lawmakers also called for greater clarity regarding how the central bank would guide policy, after the U.S. Federal Reserve set an inflation target of 2 percent the previous month.

The BOJ was facing pressure from the then Democratic Party of Japan-led government and financial markets to loosen its monetary grip to pave the way for Japan to exit years of deflation.

The minutes revealed how members of the BOJ Policy Board at the time agreed to set a "price stability goal" of 1 percent after an active debate over whether the level and wording were appropriate. The central bank releases the minutes of past policy meetings after 10 years have passed.

"For a central bank (to have an inflation target) is akin to having a constitution. We must keep in mind that this is an extremely big issue as we discuss it," Shirakawa was quoted as telling the policy meeting.

Then Deputy Governor Kiyohiko Nishimura said the BOJ was wrongly viewed as being "on the back foot," adding, "We need to aim for a price rise of 1 percent over the medium term."

One of the board members, Sayuri Shirai, concurred, saying that setting 2 percent was somewhat "unrealistic" for Japan, unlike the Fed, according to the minutes.

The members of the decision-making board discussed the nuances of the terms "target," "goal" and "objective" as they sought to clearly express the BOJ's stance on attaining price stability.

Shirakawa wanted to use the term price stability "goal" and his deputy Nishimura said "target" was too demanding, according to the minutes.

The discussion took place roughly a year before the BOJ adopted its current 2 percent price stability target in January 2013 before Shirakawa left his post.

Setting the 1 percent goal was aimed at demonstrating that the BOJ was carrying out monetary policy appropriately, and to make it easier for market participants to anticipate future policy moves as market confidence in the central bank was low, Nishimura told Kyodo News.

"The BOJ decided on monetary easing proactively but unfortunately the public saw it as a passive decision following pressure on the bank from markets and politicians," Nishimura said.

Haruhiko Kuroda, the current governor who took the helm in March 2013, then embarked on powerful monetary easing that constituted a key pillar of "Abenomics," the economy-boosting program of then Prime Minister Shinzo Abe, whose ruling Liberal Democratic Party replaced the DPJ-led government.

The 2 percent target, which Kuroda has called a "global standard," remains elusive for the BOJ despite core consumer inflation topping the threshold in recent months. The central bank is still committed to an ultralow rate policy to achieve the target in a stable and sustainable fashion.

© Kyodo News