``If a central bank without credibility makes a credible promise to run a non-credible policy, do the double negatives cancel out and create credibility?


But the question is a serious one. The BOJ has just admitted, in effect, that it has a credibility problem, even as it sets about trying to promise that it will deliberately act to damage its credibility. Its admission, couched in layers of economic jargon, underscores the worries at many other central banks that years of low inflation could become self-perpetuating.

... Put simply, long-run inflation expectations depend in large part on where inflation has been, not on the 2% target the BOJ sets for it to be in future.

... "The Bank has attempted to make expectations formation more forward-looking by pursuing QQE [quantitative and qualitative easing] with the aim of anchoring inflation expectations at the price stability target of 2%," the BOJ said last week. "However, in the course of this attempt, the observed inflation rate declined due to a variety of factors such as the substantial fall in crude oil prices, and inflation expectations--reflecting their adaptive manner--followed suit."

Translated from central bank-speak, "it wasn't our fault, but we failed."


The BOJ has also taken on an idea from Paul Krugman, a past winner of the Nobel memorial prize in economics: It wants to be credibly irresponsible. It promised on Wednesday to keep printing money until it overshoots the inflation target and stays above, in an effort to make people believe it is willing to run a looser policy in the long run than it really should. If they believed that, inflation expectations should rise faster, and inflation follow suit.

The problem is that if the target isn't believed in the first place, who is likely to believe the BOJ will go even further?

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