Kuroda convention

Bank of Japan opts to remain conventionally unconventional

Forget "shock and awe": the Bank of Japan's latest policy is more "calm and disregard". The central bank on October 30 disappointed observers who expected it to expand an already huge bond-buying programme. The bet is that prices will keep rising once the impact of cheaper oil fades. But any slowdown could yet force the BOJ to take more extreme measures.

In nearly three years in charge of the BOJ, Governor Haruhiko Kuroda has earned a reputation for taking markets by surprise. That was the effect in April 2013, when he announced plans to double Japan's monetary base in two years. A year ago, he delivered a further bombshell by expanding the central bank's bond purchases to ¤¥80 trillion ($660 billion) a year. Yet Japan remains a long way from achieving Kuroda's goal of two per cent inflation.

Figures for September, also released on October 30, show how just how far the BOJ still has to go. Core consumer prices fell 0.1 per cent compared with the same month last year. True, the absence of inflation owes much to the effect of cheaper oil. Even excluding energy, however, prices rose by just 0.9 per cent.

The BOJ's problem is that the approach is reaching its limits. It cannot really buy any more government bonds: even at the current rate, the central bank would own roughly half of all Japan's outstanding sovereign debt by 2018. And if sucking up bonds doesn't work, it's hard to see how buying other assets, like equities, would be more successful in boosting inflation expectations.

Kuroda could push to adopt even more unconventional measures, like introducing negative interest rates. Or the bank could boost spending by handing out newly-printed cash to citizens - so-called "helicopter money". Yet, even if Kuroda was in favour of such measures, he would struggle to persuade the BOJ's board.

For now, the governor still predicts inflation will reach his target next year. The risk is that a further slowdown in emerging markets pulls Japan back into a slump. The next time Kuroda decides it's time for some shock and awe, he may find his deflation-busting reputation severely diminished.