Shirai Says BOJ May Be Too Optimistic on Prices as Stocks Plunge

Bank of Japan board member Sayuri Shirai said an April forecast for inflation may prove too optimistic, as stocks plummeted and the yen strengthened to a two-month high.

Prices in the year through March 2015 “could be lower than projected by the bank,” Shirai said today, citing the danger that a sales-tax increase may encourage companies to limit price increases driven by other causes. The BOJ estimate, the median of board members’ forecasts, is for a 1.4 percent gain in the benchmark gauge, excluding the sales tax.

The Nikkei 225 Stock Average slid today to 20 percent lower than a May 22 high, underscoring the risk that investors and the public will lose confidence in efforts by Prime Minister Shinzo Abe and the BOJ to revive the world’s third-biggest economy. The central bank’s communications are complicated by divergent views among policy makers on how quickly a 2 percent inflation target can be achieved.

“While they are currently undergoing corrections, the trend of rising stocks and a weakening yen is bringing positive impacts to the economy,” Shirai said in a speech in Asahikawa, Hokkaido, northern Japan today. On the price forecast, “the risks are tilted somewhat to the downside,” she said.

The yen touched a two-month high of 94.45 per dollar today, trading at 94.69 as of 12:17 p.m. in Tokyo. The Nikkei was down 5.3 percent with the broader Topix index 4.1 percent lower.

The central bank this week restated its April pledge to increase the monetary base by 60 trillion to 70 trillion yen ($738 billion) per year, and refrained from adding extra policy tools to counter bond-market volatility.

Shirai, 50, earned a Ph.D in economics at Columbia University. In March, she proposed starting open-ended asset purchases immediately and combining two bond buying programs, policies adopted at Governor Haruhiko Kuroda’s first meeting in April.

Japan’s benchmark inflation gauge excludes fresh food. In April, the measure fell 0.4 percent from a year earlier, the sixth straight decline.

To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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