By Jasper Tolsma

SNA (Tokyo) — The Japanese economy has emerged from recession, helped along by low oil prices and a surging stock market. But at a household level optimism remains elusive.

Now that it is likely that the Bank of Japan isn’t going to deliver on the promised 2% inflation target, and structural reforms issuing from the Abe administration having been lackluster at best, questions are being more persistently raised about whether or not Japan’s economy is really on the right track.

During a recent public appearance at the Foreign Correspondents’ Club of Japan, Bank of Japan Governor Haruhiko Kuroda talked about the current state of the Japanese economy and the effects of quantitative easing, the monetary policy that was supposed to bring the Japanese economy into a state of stable inflation.

Haruhiko Kuroda

Kuroda acknowledged that the relative lack of inflation–despite the Bank of Japan’s program of intensive quantitative easing–was a setback, but he went on to note that Japan has nevertheless experienced a 20-month period of weak inflation for the first time in 17 years. In Kuroda’s view, it is not temporary deflation that is dangerous to the economy, but a long-term deflationary mindset: “A key feature of the deflation in Japan was that it was slow but mild… the biggest challenge we now face is eradicating the deflationary mindset that the Japanese public has grown accustomed to in the past 20 years.”

When questioned about the effectiveness of the quantitative easing program the Bank of Japan has adopted, Kuroda pointed to other foreign economies that have adopted the same approach: “We are all QE-sians now: the US Federal Reserve, the European Central Bank, and the Bank of England have used similar measures to increase inflation after the financial crisis hit in 2008.”

Kuroda said that monetary policy isn’t the only factor in economic recovery, asserting the need for regulatory and institutional reforms: “Japan’s potential growth rate has been declining since the 1990s because regulatory and institutional factors have hindered corporate activities and impeded competition.”

He pointed to the attitude of private sector business as a key factor why Abe’s third arrow has been slow in appearing: “One of the reasons why only some progress has been made… is that the momentum has been lacking as private entities were not sufficiently proactive.”

Although Kuroda believes that Japan’s economy is heading in the right direction, a recent Cabinet Office poll showed that only 10% of the Japanese people feel the same way.

Jasper Tolsma is a contributing writer to the Shingetsu News Agency.