Bank of Japan officials will retain their confidence that inflation trends in the country are strengthening, even if data show that the economy shrank last quarter, people familiar with the matter said.
Any adjustment to their outlook for achieving the BOJ’s target for consumer prices would only come after assessing the strength of Japan’s rebound this summer, according to the people, who asked not to be named as the talks are private. Reaching the 2 percent target by September next year may be at risk should weakness seen in the April-June period persist, they said.
Officials see no need for now to increase already-record monetary stimulus, given an anticipated pickup in consumption and exports backed by moderate income gains and a stronger U.S. economy, the people said.
Economists from Barclays Plc to Goldman Sachs Group Inc. and JPMorgan Chase & Co. estimate the economy shrank last quarter, while BOJ Governor Haruhiko Kuroda has said he doesn’t think “at all” that any weakness will continue from July. Investors are balancing diverging outlooks, one for a bonds sell off on prospects for faster inflation, the other for the BOJ to eventually boost stimulus further to spur consumer prices, according to Barclays rate strategists Akito Fukunaga and Naoya Oshikubo.
“Markets continue to walk a tightrope between two contrasting scenarios,” Fukunaga and Oshikubo wrote in a report. “We see the risk of an abrupt swing in sentiment and positioning toward one of these scenarios depending on data in the next one to two months.”
The BOJ is stepping up its efforts to highlight signs that inflation is taking hold, even as its main gauge hovers near 0 percent after the drop in oil prices. Presenting an alternative price measure in its July monthly report and comments by Deputy Governor Hiroshi Nakaso last week reflect the initiative, the people said.
Some officials see gains in the BOJ’s key consumer price measure, which excludes fresh food, accelerating to around 1 percent by December as the damping effects from oil start to fade from around October, according to the people.
The BOJ sees inflation reaching its 2 percent goal around the six months through September 2016, after Kuroda last April delayed the timing by about half a year due to the effects of cheaper energy prices.
Gross domestic product data for the quarter through June will be released on Aug. 17.