Next BOJ Stimulus Boost Seen Coming Later by Three Banks

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Japan's Inflation
Shoppers browse fruit at the Ameya Yokocho market in the Ueno district of Tokyo. Stripped of the effect of a sales-tax increase in April 2014, core inflation -- the central bank’s key measure -- was 0.2 percent in March after touching zero in February. Photographer: Kiyoshi Ota/Bloomberg

The Bank of Japan’s delayed timeframe for reaching its 2 percent inflation target has spurred at least three banks to change their own forecasts for the next increase in monetary stimulus.

Before the meeting last week where the BOJ left policy unchanged and put back its estimate for hitting the target, JPMorgan Chase and Co., HSBC Holdings Plc and Goldman Sachs Group Inc. all forecast that the bank would increase stimulus in July. Goldman and HSBC now see more easing at the Oct. 30 meeting, with JPMorgan forecasting it in January or April 2016.

With the U.S. Federal Reserve seen putting off raising interest rates until later this year, delayed anticipation for BOJ easing could limit further losses in the yen against the dollar, at least for a time. With the forecast delay in more BOJ stimulus, HSBC now sees the yen stabilizing at 120 per dollar and then falling to 125 at the end of 2015, stronger than their previous call of 128.

“Pushing out the timeframe for consumer price index target by another six months does not alter the fundamental challenges that the central bank faces in trying to generate strong, demand-pull inflation,” according to a note from HSBC analysts led by Izumi Devalier in Hong Kong. “The latest change in guidance and Governor Kuroda’s press conference remarks suggest that the board will instead adopt a wait-and-see stance in the near term.”

The Japanese currency was little changed at 119.39 per dollar at 9:39 a.m in Tokyo. The Topix index of stocks was 0.7 percent lower, joining a rout in global equity markets after a three-day holiday.

More Easing

The majority of analysts in a Bloomberg survey conducted before the policy decision expected the bank to increase stimulus by the end of October. The central bank’s delayed timeframe and Governor Haruhiko Kuroda’s repeated comments last week that he sees no need for more easing haven’t convinced others in the market that the bank won’t ease further, with at least another four economists in that survey keeping their calls for more easing by the end of October.

Inflation will reach the 2 percent target in the first half of the fiscal year starting April 2016, the bank said last week, a delay from its previous forecast of “in or around fiscal 2015.” Stripped of the effect of a sales-tax increase in April 2014, core inflation -- the central bank’s key measure -- was 0.2 percent in March after touching zero in February.

Steady Improvement

“The price trend is steadily improving and is expected to keep doing so,” Kuroda said at a press briefing after the decision. “The mechanism for a gradual increase in consumer prices is working, with wage growth on the back of the tightening labor market and solid corporate profits.”

While agreeing with that assessment, JPMorgan’s Masaaki Kanno, said the improvement won’t be fast enough to achieve the target in the new timeframe. The 2 percent target won’t be reached before the second half of 2017 or 2018, he said.

A day after the decision last week, the bank released three reports which concluded that Kuroda’s reflation strategy is working.

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