The View | Failing on inflation, Bank of Japan starts fudging data
As Bank of Japan governor Haruhiko Kuroda fails to get much traction in his bid to revitalise his country’s economy, he should spare a thought for the man who warned him this would happen: his predecessor.
Masaaki Shirakawa has been the anti-Alan Greenspan since leaving the Bank of Japan in March 2013. Where the former US Federal Reserve governor pops up all over television screens to defend his legacy, Shirakawa rarely speaks. Even when his nearly five-year term has been maligned by the government of Japanese Prime Minister Shinzo Abe for being too timid in fighting deflation, he has stayed remarkably silent.
When he was still in office, Shirakawa always claimed the causes of Japan’s deflation were a rigid economy and bad demographics, not a lack of money supply. Kuroda has yet to concede the point explicitly, but his bank’s actions essentially do. The slew of cheerleading reports Bank of Japan officials have started issuing are a tacit admission that Kuroda’s efforts at monetary stimulus have failed. The Bank of Japan has even changed its methodology for measuring inflation so the data fits its preferred narrative.
Kuroda’s team has got as far as it can with its two huge monetary infusions since April 2013
To be sure, sustained inflation would give Abe major bragging rights, and vindicate his decision to axe Shirakawa and take a more aggressive tack to end Japan’s lost-decade ordeal. But tweaking data isn’t the way to do it.
India’s credibility is still taking hits from its abrupt recalculation of the country’s 2014 gross domestic product, from 4.7 per cent to 6.9 per cent. At the time, Morgan Stanley’s Ruchir Sharma fumed that officials were “smashing India’s credibility and making its statistics bureau a laughing stock in global financial circles”. The stakes are even higher when the world’s third-biggest economy resorts to this kind of creative data crunching.
In a new research paper, Bank of Japan officials led by Koichiro Kamada argue that “the price stability target and the quantitative and qualitative monetary easing, introduced by the bank in 2013, contributed to strengthening the anchor of inflation expectations”. Too bad the neither data nor bond rates jibe with that view. Yields on 10-year government debt are currently around 0.43 per cent, lower than 0.54 per cent 12 months ago. If anything, the inverse of what the Bank of Japan is arguing is true.
Meanwhile, the Bank of Japan’s lobbying efforts to tweak official statistics are starting to fall flat. The bank’s economists tried to get government statisticians to take greater account of the deteriorating quality of rented housing over time, which they say would allow the consumer price index to better capture the cost of living; it would also give investors the sense that inflation is rising faster towards its 2 per cent target. But Sei Ueda, director of government price data, says the statistics bureau is confident it already accurately measures housing costs.
