NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Inflation Targeting and Japan: Why has the Bank of Japan not Adopted Inflation Targeting?

Takatoshi Ito

NBER Working Paper No. 10818
Issued in October 2004
NBER Program(s):   HE   ME

The paper aims at explaining why the Bank of Japan has not adopted inflation targeting, despite calls for such a policy. Disclosed minutes of the Monetary Policy Meetings of the Bank of Japan, after March 1998, as well as Speeches by its members give clues to changing reasons against inflation targeting. Inflation targeting was not adopted in Japan in the early years (the first wave of interest in1999-2000) because the Board members were not sure about an appropriate price index, and a specific number for an appropriate inflation rate. A Bank of Japan study, completed in October 2000, did not give any clear answers. Inflation targeting was not adopted in later years (2001-2003), despite the inflation-targeting-like commitment strategy adopted in March 2001, because the Board members thought that conventional tools to increase the inflation rate were not available. As such, they thought that announcing a target with a positive inflation rate would damage confidence. In terms of introducing unconventional measures, the Bank of Japan worried about the transmission channels and the damage to its balance sheet. Towards the end of Governor Hayami fs term, the views against inflation targeting turned sharply negative, as news reports suggested that it may be linked to the new Governor fs appointment. Therefore, , why inflation targeting was not adopted, can be explained and understood from a political economy perspective.

download in pdf format
   (356 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

This paper is available as PDF (356 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10818

Published: Takatoshi Ito, 2004. "Inflation Targeting and Japan: Why has the Bank of Japan not Adopted Inflation Targeting?," RBA Annual Conference Volume, in: Christopher Kent & Simon Guttmann (ed.), The Future of Inflation Targeting Reserve Bank of Australia.

Users who downloaded this paper also downloaded these:
Mishkin and Schmidt-Hebbel w12876 Does Inflation Targeting Make a Difference?
Ito and Mishkin w10878 Two Decades of Japanese Monetary Policy and the Deflation Problem
Ito and Mishkin Two Decades of Japanese Monetary Policy and the Deflation Problem
Ito w15726 Great Inflation and Central Bank Independence in Japan
Buiter w9623 Deflation: Prevention and Cure
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us