Nonetheless, nominal GDP targeting includes a few technical issues that make it problematic for a central bank to utilize it operationally, including frequent revisions of GDP data, insufficient monthly GDP data, and the release of GDP data with a lag. These issues are very relevant in Japan because the GDP revisions tend to be large and the first GDP estimate is released with an extended lag (after one . 5 months for the first estimate). A nominal GDP target could also wrongly supply the public the impression that the central bank has the capacity to raise potential GDP growth. The federal government may exert strain on the central bank if nominal economic growth isn’t sufficient. Nominal GDP targeting may undermine the government’s incentive to improve potential economic growth through structural reforms and economic growth strategies.
JAPAN government introduced nominal GDP targeting in 2015 with the numerical target of around 600 trillion yen by 2020. In late 2016, a significant revision on the machine of National Accounts (SNA) was made which added about 32 trillion yen to Japan’s nominal GDP in fiscal year 2015. This upward revision has managed to get easier for the federal government to attain its target. Nonetheless, the mark of 600 trillion yen remains challenging since it requires the average rate of nominal GDP growth around 3% in 2018-2020 – higher compared to the average rate of 2% in 2013-2017 (Figure 2). Moreover, the nominal GDP target is a lot higher than the IMF’s projection of April 2018. Moreover, the adoption of nominal GDP targeting seems to have limited effect on inflation aswell as on inflation and growth expectations in Japan as a result of insufficient concrete measures to attain the target. The media and the general public hardly focus on the nominal GDP target, which implies too little credibility.
Figure 2 Japan’s government nominal GDP target and IMF projections (trillion yen)