Is that an inflation target …

Or are you just flirting with me Bank of Japan?

In truth the BOJ has tried to hold back from an explicit 1% inflation target, and is just discussing it as a “near term goal”.  While this isn’t as positive as the Fed move to an explicit inflation target, and Australia and New Zealand’s long-term policy of having an explicit inflation target and printed rate track, it is an improvement.

With Fed and BOJ policy improving, credit markets in Europe consistently settling since mid-December, implied volatility on markets way down (the VIX), and the cost of credit down significantly in the past 6 weeks we could be seeing a real improvement on financial markets.

What does that mean in little old New Zealand?  Well our higher exchange rate is tempering part of any stimulus coming from offshore, while its up to the RBNZ to keep an eye on the rate track.  If financial conditions look like they are going to improve in the near future the Bank may suggest that they will be lifting rates in larger chunks when they do get around to it.  It will be interesting to see what happens when we get to the March meeting.

  • It will be interesting to see if it becomes an explicit target. It is most likely an informal declaration to forestall political pressure which is coming from impatient politicians who have been threatening the BOJ with “reform.” If it was a reform just to introduce inflation targeting that might not be so bad as you indicate. But some of the proposals are to take away the independence of the BOJ, even so far as giving the MOF control over some of its functions. Not good. 

    • Sounds like they this is one area they need to listen to Western policy makers and they aren’t – a strange turn of events to be sure.