Disappointing data shows Japan's not back yet

The implication was that interest rates may no longer be geared toward combating something that no longer exists. There was a whiff of normalization.

Events have caught up with Kuroda and his upbeat comments look premature, at best, and like a misreading of the economic cycle. He’s likely to spend at least part of next week’s policy meeting and press conference, the first of the year for the world’s major central banks, walking back his Nagoya exuberance.

Kuroda’s prospective Houdini act reflects disappointing Japanese data and a changed international landscape. In that sense, the BOJ is emblematic of how the global dynamics have shifted: With the expansion slowing, any central bank that hasn’t already begun to tighten can forget it. That was true, even in October as I wrote here, let alone November. Even more so now.

And those that have been tightening or unwinding stimulus are going to find it tough to go much further. The Federal Reserve has signaled loudly it’s in pause mode, and European Central Bank President Mario Draghi confirmed the end of quantitative easing through gritted teeth. It should have been Draghi’s victory lap.

The People’s Bank of China, which isn’t independent like its siblings, is nevertheless instructive on this point. Late last year, the PBOC said policy would be “prudent” but dropped the word “neutral” from its verbiage, implying officials are prepared to do more to spur the economy. Growth is cooling and inflation is dissipating, as it is in most major economies.

Japan’s plight is far from dire: The jobless rate is 2.5 percent and has been steadily declining for the past decade, reflecting at least in part a dwindling population. Employers and workers don’t have the visceral fear of automation and robotics that exists in the West.

Yet while prices are off the floor, they’re no longer edging toward the 2 percent target. Though wages are up, household spending fell for eight months last year.