BOJ Faces Red Light as Yen Exporting Deflation: Chart of the Day

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Bank of Japan Governor Haruhiko Kuroda may face resistance from developed-nation peers to expanding record stimulus because the currency impact may undermine global economic growth, according to BNP Paribas SA.

The CHART OF THE DAY shows the average inflation rate across 10 major economies halved in the past three years. The index excludes Japan, which has reversed more than a decade of deflation and is now experiencing the strongest consumer-price increases since 2008. The yen’s effective exchange rate against a basket of currencies is also shown as it slid to a five-year low in January as the BOJ expands the monetary base by 60 trillion yen ($584 billion) to 70 trillion yen per year

“Japan’s monetary easing that may lead to yen weakness could face some opposition from Western nations as inflation slows in these countries,” said Ryutaro Kono, the chief Japan economist in Tokyo at BNP. Kono is one of the four out of 34 analysts in a Bloomberg News survey to predict the BOJ will refrain from adding easing measures this year.

European Central Bank President Mario Draghi kept the benchmark interest rate at a record-low 0.25 percent on March 6 and signaled extended gains in the euro could be of concern because it might slow inflation in the bloc that’s already less than half the bank’s 2 percent target. The major currencies include the U.S., Canadian, Australian and New Zealand dollars, along with the Scandinavian tenders, the Swiss franc, the British pound and the euro.

Most economists forecast Kuroda will boost stimulus this year as next month’s first sales tax increase for Japan since 1997 threatens to trigger the deepest economic contraction in three years. Prime Minister Shinzo Abe’s unprecedented effort to end deflation succeeded in spurring economic growth and boosting consumer prices, partly by encouraging a 19 percent slump in the yen over the past two years to 102.76 per dollar yesterday in New York.

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Kazumi Miura in Tokyo at kmiura1@bloomberg.net

To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net Naoto Hosoda

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