"How much do you hate deflation?"

In order to avoid seeming obsessed with the Livedoor debacle--I mean, sheesh, why should I consider the destruction of US$400 billion in market wealth over 3 days important?--perhaps I should look at some other economic news.

The prophet of Channel 12 has come down from the mountaintop. Upon the stone tablets he bears are shining the fateful words:

"Mene, mene, tekel upharsin"

No, wait, wrong prophetic words. I'm sorry. Here are the correct prophetic words:

"I have changed my view on the speed of introducing inflation targeting in Japan," Feldman said in a note to clients dated Jan. 10. "Japan will introduce inflation targeting within 2006."

Yes, Robert Alan Feldman, who only last year was still channeling some of the filthiest fiscal rebalancing fantasies of the Finance Ministry, now expects the Bank of Japan to adopt a positive inflation target.

Wow! Out with the old and in with the bold!

Funny thing though, Feldman's contribution to the Morgan Stanley Global Forum of January 13 seems to be saying that the implementation of inflation targeting may be delayed by anti-reform elements diddling around until the clock runs out on Koizumi's premiership:

The threat comes from the ability of anti-reform forces to use foot-dragging as a technique to delay reforms, hoping that the next administration loses interest. The importance of this threat was emphasized a few weeks ago, when PM Koizumi angrily admonished some of his ministers for inadequate proposals on reform of government financial institutions. The result was more aggressive on reform than expected.

However, not all issues get to the PM’s level. Inflation targeting is a good example. There are many complex issues, such as how to create a better consumer price index, how to model the relationship of actual inflation expectations to official inflation targets, how to measure actual GDP and potential GDP, etc. With the clock ticking, it is easy for bureaucrats to work slowly, and avoid changing anything. On the other hand, the ticking clock makes the administration more impatient with foot-dragging, and imposes shorter deadlines.

So which is it?

Now Stephen Kirchner, whom the incomparable Brad Setser has weighed in the balance and found wanting, has submitted an essay to the Business Week website expressing a similar opinion. "Similar" in this case means that while Feldman tries to make sense of a glaring inconsistency, Kirchner elides over it:

Will Japan Target Inflation in 2006?
Business Week Online

The Bank of Japan may well adopt a formal target figure to guide monetary policy after easing interest rates.

As the Bank of Japan prepares to finish quantitative easing of interest rates, an important issue will be how it defines its post-reflationary monetary policy framework. Despite its previous opposition, the Bank of Japan is now likely to find merit in the adoption of a formal inflation target, possibly in conjunction with the government.

Aaaaaaarghhhh! Stop it! Stop it! OK, Kirchner is not necessarily to blame for that idiotic summary line. It is probably just stupid editorial error--for why indeed should an editor of a Business Week article about Japanese monetary policy know anything at all about Japanese monetary policy? No matter whose fault it is, could someone please see to it that the summary line gets corrected or deleted?

All right, Dr. Kirchner, feel free to skip ahead to the main argument.

The Bank of Japan has also been influenced by the "Nike," or "Just Do It," approach of the U.S. Federal Reserve. The Bank of Japan sees the Fed's approach as more relevant to its situation than, for example, dollar-bloc economies like Canada, Australia, and New Zealand, which adopted inflation targets from the early 1990s. With incoming Fed Chairman Ben Bernanke sympathetic to inflation targeting, however, this is likely to spark a reassessment on the part of the Bank of Japan. If the Fed moved to adopt an inflation target, the Bank of Japan would not want to be an outlier in terms of G3 practice. The Bank of Japan is now likely to see an inflation target as a useful way of containing long-term inflation expectations as the Japanese economy recovers.

Gosh, all that sounds so reasonable. Too bad it is really, deeply, sincerely bizarre.

OK, even given the Japanese prediliction for following the lead of others except in all those areas where Japanese seek to be different (sic) the concept that the BOJ could adopt an inflation target is hard to swallow:

1) The BOJ's current policy is quantitative easing, which is Central Bankerese for "it's free money--just take it, damn you."

2) There is currently no inflation in Japan, nor has there been any for several years--despite the BOJ policy of giving money away.

3) The BOJ, in an effort to return to "normal central banking," will cease the policy of quantitative easing sometime this year (Inshallah). When translated from the Central Bankerese, "cease the policy of quantitative easing" reads, "OK, the money is still free but you have to come and get it yourself."

4) Meaning that the volume of money sloshing through the economy will be smaller.

5) Which, and correct me if I am wrong, is a deflationary act.

6) After which, the BOJ will announce a policy to target a positive rate of inflation.

Yes, I am oversimplifying the debate and the policies...but it seems daft to target a positive rate of inflation when you can't even spark it by giving money away.

Somehow, I feel I have heard a similar debate somewhere else...
...
FRANCIS:
Why are you always on about women, Stan?
STAN:
I want to be one.
REG:
What?
STAN:
I want to be a woman. From now on, I want you all to call me 'Loretta'.
REG:
What?!
LORETTA:
It's my right as a man.
JUDITH:
Well, why do you want to be Loretta, Stan?
LORETTA:
I want to have babies.
REG:
You want to have babies?!
LORETTA:
It's every man's right to have babies if he wants them.
REG:
But... you can't have babies.
LORETTA:
Don't you oppress me.
REG:
I'm not oppressing you, Stan. You haven't got a womb! Where's the foetus going to gestate?! You going to keep it in a box?!
LORETTA:
[crying]
JUDITH:
Here! I-- I've got an idea. Suppose you agree that he can't actually have babies, not having a womb, which is nobody's fault, not even the Romans', but that he can have the right to have babies.
FRANCIS:
Good idea, Judith. We shall fight the oppressors for your right to have babies, brother. Sister. Sorry.
REG:
What's the point?
FRANCIS:
What?
REG:
What's the point of fighting for his right to have babies when he can't have babies?!
FRANCIS:
It is symbolic of our struggle against oppression.
REG:
Symbolic of his struggle against reality.

[Photo and script from Life of Brian]