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WHEN central bankers pause for thought these days, there's just one idea they're unlikely to entertain: backing down.
Take Haruhiko Kuroda, governor of the Bank of Japan. Having helped push his institution further into the realms of unconventional, reflationary stimulus than any of his major peers, he has now instigated a comprehensive review to study its effects, which have waned. The only thing the BOJ won't conclude when the assessment is completed for its September board meeting, Mr Kuroda has said, is to do less.
That resembles the conundrum global central bankers are likely to debate when they gather later this month at the US Federal Reserve's annual symposium in Jackson Hole, Wyoming. While governments are starting to break from the grip of austerity that has handcuffed growth in recent years, the support from authorities in Europe, Japan and even the US may be modest at best and fall short of long-term solutions, maintaining pressure on central banks to extend their own stimulus efforts.
"While central bankers are pulling their hair out about being overburdened and going on about structural reforms, they know that they can't be seen to be giving up," said Janet Henry, global chief economist at HSBC Bank Plc in London. Policy makers "have to be very, very careful about sending a signal that they've done all they can". That's partly because of market sensitivity to the perception that central banks are taking their foot off the gas - witness the jump in the yen on July 21 after reports emerged that Mr Kuroda had ruled out helicopter money, or the slump in global stocks on Dec 3 after the European Central Bank disappointed on extra stimulus.
It's also about policy makers being unable to admit failure.
In attempting to hit a 2 per cent annual inflation target, the BOJ has expanded its balance sheet to more than 80 per cent of gross domestic product, far further than similar stimulus efforts in Europe or the US have gone. Despite some initial success in reversing deflation, after the effects of a 2014 sales-tax hike waned and oil prices began to collapse, CPI steadily weakened and has been falling for most of this year.
The criticism, at home and abroad, that accompanied the decision in January to introduce a negative interest rate on some deposits may have also helped prompt the rethink. While investors have questioned whether BOJ stimulus is reaching its limits, a majority of economists surveyed by Bloomberg News say the review will probably result in more, not less stimulus.
In Europe, monetary policy is also poised to step up again. European Central Bank president Mario Draghi faces the risk of a renewed economic slowdown in the aftermath of the UK's decision to leave the European Union, as well as fresh downward pressure on headline inflation from falling oil prices. Inflation in the euro area rose to a mere 0.2 per cent in July. More stimulus, in the shape of extended asset purchases, could be in the cards for the Sept 8 policy meeting.
And that's despite intensifying rhetoric from ECB policy makers that governments in the 19-nation euro area need to boost fiscal support and structural reform. Mr Draghi uses his press conferences now to call for "other actors" to play their part.
The Bank of England, which last week cut interest rates and boosted asset purchases in an attempt to fend off a Brexit-induced recession, is treading an increasingly fine line between government tasks and its own mandate. While denying that monetary policy is out of ammunition, BOE governor Mark Carney has pledged "ruthless truth telling" on where the limits of his institution lie in an environment of very high uncertainty.
The issue is also relevant for the US, even though the world's largest economy should grow at close to 2 per cent this year and the Fed has embarked on a tightening of policy, not an easing. Yet that expansion is slow in historical terms, suggesting the central bank alone "can't do much to goose the long-run potential growth rate", according to Stephen Stanley, chief economist at Amherst Pierpont Securities in New York.
Fed chair Janet Yellen, who will speak at Jackson Hole on Aug 26, said in June that the central bank still has tools to support demand if needed. In rare circumstances when "severe downside risks" exist, monetary and fiscal policy shouldn't be "working at cross purposes", she has said.
Yet around the industrialised world, as economies grapple with aging societies, sluggish productivity growth and falling equilibrium interest rates, monetary-fiscal alignment may not be enough. Japanese Prime Minister Shinzo Abe, for one, has had little success pushing through structural changes that go beyond short-term fiscal spending.
Without help, the risk is that central banks remain locked in a stimulus cycle they can't escape.
"There is greater awareness of the limits of monetary policy, but I'm not sure there is a readiness to pro-actively use fiscal policy," said Domenico Lombardi, director of the global economy programme at the Centre for International Governance Innovation in Waterloo, Ontario. BLOOMBERG