BoJ must re-examine monetary framework, inflation targets


Former Bank of Japan (BoJ) Governor Masaaki Shirakawa urges the policymakers to reconsider central banks’ monetary framework based on inflation targets, in a column published by the International Monetary Fund (IMF) on Wednesday.

Key takeaways

“Before the recent spike in inflation, many central banks in advanced economies were “overwhelmingly” concerned about low inflation, and failed to restrain rapid price gains by judging them as transitory.”

“By allowing inflation to overshoot their targets, central banks forgot the difficulty of taking away the monetary punch bowl and failed to tighten policy soon enough.”

“Inflation targeting itself was an innovation that came about in response to the severe stagflation of the 1970s and early 1980s. There is no reason to believe it is set in stone.”

“Now that we know its limitations, the time is ripe to reconsider the intellectual foundation on which we have relied for the past 30 years and renew our framework for monetary policy.”