Two-percent inflation is the BOJ's stated 'goalpost', and the Kuroda BOJ is strongly committed to achieving it, but investors should not rule out the possibility that this goalpost becomes more flexible. A 2% inflation target, as Kuroda said, is an 'international standard', and targeting anything lower would be self-defeating as any resulting currency appreciation could be deflationary. Yet is 2% really appropriate in the most demographically challenged economy? Targeting high inflation usually is a hard sell to the elders.



In Japan, more than 40% of the household population is 65 years or older. Inflation is an economic drag for those dependent on spending from their savings and, importantly, elders are a very large political constituent in Japan. The administration learned a hard lesson of how inflation - whether a result of a VAT hike or weak currency - can hurt consumers (even workers if they have no meaningful wage growth to offset it) and, hence, weaken political stability.



Moving the goalpost explicitly by lowering the target from 2% to, say 1%, would be highly unlikely, but doing so implicitly by operating inflation targeting in a more flexible manner is a possibility. The BOJ appears to have already made a first step for the change, as it recently delayed the projected timing of achieving the target from the initial commitment of roughly two years from the start of QQE in April 2013.