BoJ’s Kuroda admits failure in meeting inflation target in 2 years

The Bank of Japan Governor Kuroda has, for the first time, admitted that the central bank has failed in its attempts to reach the inflation target of two percent in a two-year framework, underscoring the challenges of eradicating the country's sticky deflationary mindset.

He further mentioned that most central bankers are facing the difficult challenge of meeting the desired level of inflation expectations, while responding to deflationary pressures and firmly stabilizing inflation expectations. However, in theory, inflation expectations should respond immediately to monetary policy changes if the central bank's commitment to aggressive monetary easing is deemed credible by markets.

Japan's core consumer price index (CPI), which includes energy but excludes volatile fresh food costs, fell 0.3 percent in April from a year earlier, matching the drop in March which was the biggest annual decline in three years.

"However, inflation expectations observed in practice are highly sticky and change only slowly," Kuroda said in a speech on Monday at Japan's Keio University.

In deploying its massive asset-buying program in April 2013, the BoJ pledged to achieve its 2 percent inflation target at the earliest date possible within a timeframe of roughly two years. Meanwhile, he also mentioned that the CB has no plans to change its commitment towards the achievement of 2 percent targeted inflation at the earliest possible time.

Further, the BoJ Governor also defended the bank’s decision to adopt negative interest rate in its massive asset-buying program saying the hit to financial institutions' profits from the policy is "really limited".

"Negative interest rates were quite new in Japan... so initially there was some confusion and uncertainty. But now the new policy framework is well understood and having a positive impact on the real economy," he added.