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Economy

Kuroda continues lonely quest for 2% inflation

TOKYO -- Even as the government grows less eager to see price growth in light of tumbling oil prices, Bank of Japan Gov. Haruhiko Kuroda is standing by his pledge to achieve 2% inflation. And this could be a grueling fight for the central bank chief, who was dubbed "one of the most lonely men in the world" at this year's Davos economic forum.

     The cabinet significantly toned down its rhetoric on the inflation target in the January edition of its monthly economic report, released last Friday. For nearly two years, the government had said the central bank should meet the 2% price stability target "at the earliest possible time."

     The expression was first used in the January 2013 report to reflect Prime Minister Shinzo Abe's strong push to reach 2% inflation in about two years. But the latest report dropped "at the earliest possible time" and instead urges the central bank to take into account "economic activity and prices," catching many BOJ insiders off guard.

     "Neither the government nor the BOJ has committed to a strict deadline to achieve the 2% target," explained Akira Amari, state minister for economic and fiscal policy, on Wednesday.

     With crude prices plunging, "we have to consider the drastic change in the environment as we try to achieve the target in around two years," Amari said.

     The BOJ, with little room left for additional measures after its massive asset purchases, could take the government's less stringent stance as a relief. But many at the bank actually appear to have mixed feelings, since the BOJ has worked hard to overcome Japan's deflation mind-set by spurring market hopes.

     "With the time frame of about two years in mind, we will take necessary steps to achieve the 2% target as early as possible," Kuroda said Jan. 21 after a BOJ policy board meeting.

     "Nothing has changed," he said, conceding that the time frame may go beyond March 2016.

     At the World Economic Forum in Davos last week, Kuroda told the BBC that he still considers the target achievable by March 2016 while noting the potential impact of crude oil prices. He once again showed resolve to shore up business and household sentiment, as he had by taking extra easing steps in October.

     But the latest change in the government's tone may dampen the inflation expectations the BOJ has tried so hard to prop up.

     Kuroda is scheduled to exchange views with government officials this Friday at the Council on Economic and Fiscal Policy's quarterly meeting on prices and monetary policy. The gathering, introduced at the same time as the 2% price target, was originally intended as a venue for the government to pressure the BOJ to ease monetary policy. But now, Kuroda may realize there that he is holding up the banner by himself.

(Nikkei)

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