Japanese Companies Hold Steady View of Year-Ahead Inflation

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Japanese companies forecast inflation will accelerate to 1.4 percent in the year ahead, the same pace that they forecast three months ago, a survey from the Bank of Japan shows.

Consumer prices gains will be 1.5 percent three years out, and 1.6 percent in five years, according to company forecasts, the BOJ said in a Tankan report released on Thursday. In the March survey, companies had forecast inflation of 1.4 percent for the year ahead.

The central bank is injecting record monetary stimulus into the economy to stamp out deflationary expectations and generate stable 2 percent consumer price gains, an environment that Japan hasn’t seen since the early 1990s. Citigroup Inc. is among banks forecasting the BOJ’s main price gauge could drop in coming months because of cheaper oil, challenging Governor Haruhiko Kuroda’s effort.

“The BOJ will be encouraged by inflation expectations that are more or less unchanged, even after price increases slowed,” said Takeshi Minami, an economist at Norinchukin Research Institute. “The real challenge is that the BOJ must boost those expectations to get to its target.”

Households see 3 percent inflation in one year, according to a separate survey released by the BOJ on Thursday, unchanged from three months ago.

Nationwide consumer prices rose 0.5 percent in May from a year earlier. The BOJ’s preferred gauge, which excludes fresh food and previous effects of a sales-tax increase, climbed 0.1 percent, slowing from last year’s peak of 1.5 percent in April.

Some members of the BOJ’s policy board said that inflation expectations have been maintained despite the slowing consumer price increases, minutes of its May 21-22 meeting show.

Kuroda is counting on tightening supply in the economy combined with expectations that costs will rise to feed into higher inflation.

After the BOJ kept its monetary policy unchanged last month, Kuroda reaffirmed that inflation remains on track to meet the BOJ’s 2 percent target around the first half of next fiscal year, which starts in April 2016.

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