BOJ and inflation struggles, what else is new in Japan?
The central bank moved to cut its inflation forecasts earlier today in what looks to be another move that suggests that they are losing more and more confidence towards ever reaching its 2% inflation target in the long-run. That said, it's not like markets were ever expecting them to really be able to achieve that over the next two to three fiscal years anyway.
It was always just going to be a pipe dream, as we reasoned out last year here.
In February 2018, the preferred inflation measure i.e. core CPI showed a reading of +0.5% y/y. Fast forward to December 2018, it actually softened to +0.3% y/y. That's nowhere near sustainable levels in which inflationary pressures will converge towards the BOJ's target. If anything, it's moving further away from it.
As mentioned then, it's pretty much a case of either the BOJ abandoning/revising the 2% inflation target or it tries to find more ways to stimulate inflationary pressures in the economy. As it stands, clearly even a tighter labour market isn't helping with that.
Either way, expect Kuroda & co. to keep putting up a confident and calm facade in their speeches/communication still. It is after all part of their job, even if they don't believe in it.
