The article reports that household inflation expectations collapsed after the breakdown of the 0% anchor, says that the Bank of Japan’s 2% target has not become firmly established, and points to the risk of having no “anchor” to influence the stability of prices and the yen exchange rate.
A nominal anchor is a benchmark for stabilizing the value of money. Following the gold standard and the Bretton Woods system, targets of around 2% are now set through inflation targeting. Japan is said to have introduced a 2% price stability target in January 2013.
Household inflation expectations are prone to fluctuation in response to external shocks, and are said to have been gradually affected even during the era of the 0% anchor. The article explains that there was a period when everyday expectations were unstable and the “anchor” for expectations was absent.
During the period spanning the war involving Iran, household inflation expectations are said to have risen by 1.3 percentage points over two months, highlighting the magnitude of the response to external shocks. This situation may indicate insufficient and sustained confidence in the policies responsible for price and exchange-rate stability.
The article discusses how a continued absence of a nominal anchor is linked to Japan’s lack of a policy track record, identifying future policy management and the formation of market confidence as challenges.
In light of these points, the absence of a new anchor for stabilizing prices and the yen exchange rate is said to pose a risk.