BOJ Inflation Confidence Seen Cutting Chance of Stimulus

Photographer: Tomohiro Ohsumi/Bloomberg

Japan's national flag flies atop the Bank of Japan headquarters in Tokyo, Japan. Close

Japan's national flag flies atop the Bank of Japan headquarters in Tokyo, Japan.

Photographer: Tomohiro Ohsumi/Bloomberg

Japan's national flag flies atop the Bank of Japan headquarters in Tokyo, Japan.

The confidence Bank of Japan officials are demonstrating in achieving their inflation target is lowering the chances of additional monetary easing this year even as the economy weakens.

Consumer prices, excluding fresh food, will increase 1.9 percent in the fiscal year starting April 1, 2015, and 2.1 percent the next year, according to the median estimates of BOJ board members in a quarterly outlook released yesterday. Governor Haruhiko Kuroda said the timing on hitting the BOJ’s 2 percent goal hasn’t been pushed back at all.

The sureness -- in the face of continued declines in base wages, weaker-than-anticipated industrial production and diminished price pressures from energy costs -- spurred economists at Itochu Corp., Societe Generale SA and HSBC Holdings Plc to abandon forecasts for expanded BOJ stimulus this year. The central bank predictions raise the stakes for Kuroda should the economy fail to pick up in the second half of the year.

“Considering the outlook report, lower growth alone won’t be enough to trigger extra easing,” said Itochu economist Yoshimasa Maruyama. “We’re pushing back our forecast for the timing of more stimulus to the first quarter of next year from as early as July.”

Photographer: Kiyoshi Ota/Bloomberg

Haruhiko Kuroda, governor of the Bank of Japan. Close

Haruhiko Kuroda, governor of the Bank of Japan.

Photographer: Kiyoshi Ota/Bloomberg

Haruhiko Kuroda, governor of the Bank of Japan.

Virtuous Cycle

Since taking the helm of the BOJ, Kuroda has wrong-footed economists in their predictions for additional easing. As of May last year, 65 percent predicted a move within 2013, according to the Japan Center for Economic Research. October 2013, April 2014 and then July 2014 have, in their turn, been favored months for those forecasting extra loosening.

The BOJ stuck yesterday with a plan for an annual increase in the monetary base of between 60 trillion yen and 70 trillion yen ($683 billion).

Japan's Economic Shock Therapy

While the BOJ trimmed its growth estimate for the current fiscal year, Kuroda said a setback to the economy from the bump in the sales tax has been within expectations, with consumer spending solid and employment improving. A virtuous cycle in which rising production, incomes and spending fuel economic expansion will continue, with growth set to exceed its potential, he said.

Inflation will accelerate from 1.3 percent this year, according to the median forecasts of the BOJ board. The economy will expand 1.1 percent in the fiscal year that began last month -- less than its 1.4 percent forecast in January -- and grow 1.5 percent next year and 1.3 percent in the following 12 months, according to the estimates.

Sales Tax

HSBC pushed back its call for further stimulus, with its “base case” now for the BOJ to move in April 2015, instead of its previous forecast for July this year, economist Izumi Devalier wrote in an e-mailed note today.

“It has become increasingly clear that near-term easing is not on the cards,” Devalier wrote.

The central bank is monitoring the economy’s performance after the 3 percentage point sales-levy rise on April 1 that’s projected to trigger a contraction this quarter due to weak consumption. The increase is aimed at helping rein in the world’s biggest debt burden.

The Nikkei 225 Stock Average has been the worst performer among major global stock markets this year, with a four-month slide through April signaling fading expectations for Prime Minister Shinzo Abe’s so-called “third arrow” -- the polices intended to improve the efficiency of the economy to bolster long-term growth once stimulus fades. The index was up 0.7 percent at 10:01 a.m. today in Tokyo as U.S. shares gained after the Federal Reserve said the economy is gaining momentum. The yen was little changed at 102.20 per dollar.

Wages Fall

A gauge of Japan’s manufacturing activity tumbled in April to the lowest level since February last year, according to data released yesterday. Industrial production in March rose 0.3 percent from the previous month, less than a 0.5 percent gain forecast in a separate survey of economists by Bloomberg.

Households are getting squeezed by the higher sales tax as incomes stagnate. Tokyo’s consumer prices excluding fresh food rose 2.7 percent in April, the fastest pace since 1992, boosted by the higher levy. Wages excluding overtime pay and bonuses fell for a 22nd straight month in March, dropping 0.4 percent from a year earlier.

“It’s possible the sales tax will be a drag for a prolonged period as wage growth isn’t catching up with inflation,” said Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute Co. “July will be key for the BOJ to judge if additional stimulus is needed.”

July Meeting

Citigroup economists Kiichi Murashima and Naoki Iizuka said they see extra easing sometime during or after this autumn, pushing back a previous call for a move in June or July.

To be sure, not all economists see the BOJ holding its fire in the coming months.

The odds that the central bank bolsters stimulus in July are rising, according to Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. While Kuroda said on April 8 following the previous board meeting that the BOJ wasn’t thinking of further easing, the governor didn’t repeat that comment yesterday when asked at the press conference, Kanno wrote in a note yesterday.

“What Kuroda did not say today is more important than what he said,” Kanno wrote.

Should economic data for May and surveys for the prospects for June fail to show any significant improvement, the BOJ will likely add to easing on July 15, Kanno wrote.

Diverging Views

Kuroda said the central bank expects the inflation target to be reached in fiscal 2015. In previous statements, he said the goal would be achieved sometime in a period running from mid or late fiscal 2014 through fiscal 2015.

Comments from the governor underscored the range of views on the policy board. Kuroda said Takahide Kiuchi and Takehiro Sato opposed saying price gains would reach 2 percent, while Sayuri Shirai said the goal would be achieved toward the end of the projection period through March 2017.

The BOJ’s inflation forecasts for this and next fiscal year matched its estimates in January. The projections are the median estimates of the nine board members and exclude the effects of sales-tax increases.

“We will adjust policy without hesitation as needed, examining risks at each policy meeting,” Kuroda said at a press conference. “Various risks remain to the upside and downside, especially in overseas economies.”

To contact the reporters on this story: Toru Fujioka in Tokyo at; Masahiro Hidaka in Tokyo at

To contact the editors responsible for this story: Paul Panckhurst at Arran Scott, James Mayger

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