The Bank of Japan maintained its unprecedented plan to boost money supply at a policy meeting today, and predicted inflation will almost match its target in two years even after a report highlighted deflation’s grip.
Consumer prices, excluding the impact of a sales-tax increase and volatile fresh food costs, will rise 1.9 percent in the fiscal year starting in April 2015, according to the median estimate of BOJ board members published in Tokyo today. A separate release showed that the gauge tumbled by 0.5 percent in March, the most in two years.
BOJ Governor Haruhiko Kuroda’s faith that monetary policy alone will end more than a decade of deflation weighing down the world’s third-largest economy has run up against predictions of failure from former central bankers and ex colleagues from his Finance Ministry days. Policy makers may come under pressure to expand stimulus should prices continue to drop.
“It’s unrealistic -- they won’t be able to reach their target in two years, or even in five,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo and a former BOJ official. Extra easing may be needed as early as October, when the BOJ releases new price forecasts, he said.
Policy board members themselves are divided over the outlook for inflation, with some anticipating that consumer prices won’t even rise at half the rate they set as a target this month. While the highest of their projections for fiscal 2015 is for a 2.3 percent consumer-price gain excluding the tax increase, the lowest is 0.8 percent.
Former investment-bank economists Takahide Kiuchi and Takehiro Sato, who joined the board last year, opposed today’s statement that inflation is likely to reach 2 percent in the latter half of the three-year BOJ forecast horizon, Kuroda told reporters at a press briefing today. He said he personally thinks the goal will be achieved in the 2015 fiscal year.
Kuroda said that no board member judged that additional easing was needed now, and that policy adjustments would be made if necessary. The bank will keep its stimulus until stable 2 percent gains in consumer prices are realized, he said.
The BOJ earlier today reiterated its commitment to enlarge the monetary base, a gauge of money that includes physical currency in circulation plus assets that financial institutions hold at the BOJ, by 60 trillion yen ($607 billion) to 70 trillion yen a year.
The yen advanced, paring its slide since November that’s helped strengthen Japanese exporters’ competitiveness. The currency rose 0.7 percent to 98.61 per dollar at 5 p.m. in Tokyo. The Nikkei 225 Stock Average closed down 0.3 percent.
Consumer prices excluding fresh food slid 0.5 percent in March from a year earlier, the statistics bureau said today. The median estimate of 25 economists surveyed by Bloomberg News was for a 0.4 percent decline. Overall prices dropped 0.9 percent. The BOJ this month said that it expects prices to keep declining for “the time being.”
Eisuke Sakakibara, an ex-Finance Ministry colleague, has predicted Kuroda will fail to achieve the 2 percent price goal, and former BOJ board member Atsushi Mizuno sees the central bank hitting a “wall of reality” as bond purchases escalate risks of a market bubble.
Board members today raised their 2014 expectation for the core consumer price gauge to a gain of 1.4 percent, from a January forecast of 0.9 percent, according to the median estimate of the nine-member panel.
Economic growth may be 2.9 percent this fiscal year, followed by gains of 1.4 percent and 1.6 percent, according to today’s forecasts. Annualized growth was 0.2 percent in the fourth quarter of last year.
Kuroda, a former Finance Ministry bureaucrat who oversaw exchange-rate policy more than a decade ago and for years has advocated more robust monetary easing to end deflation, led his second board meeting since taking the helm last month. At his first meeting, on April 4, he led an 8-1 vote to set a two-year time horizon for reaching 2 percent inflation.
“We can expect more easing later this year if prices refuse to edge up,” Junko Nishioka, chief economist at Royal Bank of Scotland Group Plc (RBS) in Tokyo and a former BOJ official, said before the bank released its updated economic projections. “It’s imperative for the BOJ to clearly communicate its objectives to maintain expectations that prices will rise.”
The bank earlier this month committed to double the monetary base in two years, exceeding analysts’ estimates, through increased purchases mainly of government bonds, along with exchange-traded funds. All 18 economists surveyed by Bloomberg before today’s gathering predicted no change in policy.
The BOJ’s easing is pushing up property prices and is likely to lead to higher rents -- a key consumer-price driver, said Nishioka at Royal Bank of Scotland. Prime Minister Shinzo Abe is also using his ties with business leaders to try to pressure companies to raise wages, she said.
Last year’s “sharp” price increases for gasoline, kerosene, and other energy-related goods mean Japan’s core consumer-price index will probably remain negative through at least this month, Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo, said before the report.
The March CPI figure was likely affected by an increase in television prices last year, Tokyo-based Barclays Plc analysts including Kyohei Morita said in a research report last week, forecasting prices will start to increase around July. The report today showed that the price of TVs dropped 19 percent from a year earlier, while room air-conditioners fell 18 percent.
The yen has retreated more than 3 percent against the dollar since the April 4 announcement of increased monetary easing, and is down about 12 percent this year.
A more competitive exchange rate helped Sony Corp. (6758), Japan’s biggest television maker, yesterday report its first annual profit in five years. Net income was probably 40 billion yen in the year ended March 31, compared with a net loss of 456.7 billion yen a year earlier, the company said in a preliminary earnings statement.
While South Korean officials have highlighted risks to their economy from a sinking yen, finance chiefs from the Group of 20 last week refrained from criticizing Japan over any move to drive down its currency. Kuroda and Abe’s government have portrayed Japan’s stimulus as a campaign to reflate the domestic economy, rather than to win a more competitive exchange rate.
The Nikkei 225 Stock Average has soared 60 percent since mid-November, when it became clear that Abe would win office in ensuing national elections, giving him rein to overhaul the BOJ’s leadership and implement reflationary policies.
Japan’s efforts to reflate its economy coincide with a slowing in some of its fellow Asian nations. Singapore today reported that industrial production slumped 4.1 percent in March from a year before. China last week said its gross domestic product rose 7.7 percent in the first quarter, capping the longest streak of expansion below 8 percent in at least 20 years.
Elsewhere around the world, a report today may show the U.S. economy expanded at a faster pace in the first quarter. Growth quickened to a 3 percent annual rate from 0.4 percent in the final three months of 2012, according to the median forecast of economists surveyed by Bloomberg.
Also due are indicators of consumer confidence in France and money supply across the euro area. In the Asia Pacific region, South Korean consumer confidence slipped this month, a report showed in Seoul.
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