Haruhiko Kuroda, new chief of the Bank of Japan, said some magic words at his confirmation hearing over the weekend: "I would like to make my stance clear that we will do whatever we can do" to raise Japan's inflation rate from 0 percent to 2 percent over the next several years.
What will he do exactly? I have no idea. What should he do exactly? I also have no idea. But whatever he does, the key thing is to stick with the words. Roll out some new actions and remind people that if the new actions don't work, more actions will be forthcoming. Recall that Mario Draghi was able to put a rapid cap on peripheral government borrowing costs by vowing to do "whatever it takes" to keep the eurozone together. Those magic words didn't solve all the eurozone's problems any more than an end to deflation will solve all of Japan's problems. But central banks can solve the problems that they can solve quite easily when they're willing to say the magic words.