BOJ Said to Consider Boosting Inflation Forecast After Yen Falls

The Bank of Japan may increase its fiscal 2014 inflation forecast at this month’s policy meeting as stimulus measures and a weaker yen boost growth prospects, according to people familiar with officials’ discussions.

The central bank may raise an October projection for an 0.8 percent increase in consumer prices excluding fresh food, the people said on condition of anonymity because the discussions are private. They didn’t specify a new number. The current forecast was made before Prime Minister Shinzo Abe took office last month, pledging aggressive measures to counter deflation.

The BOJ is set to adopt the 2 percent inflation target advocated by Abe, doubling its existing goal of 1 percent, without setting a deadline for achieving it, the people said. Nomura Holdings Inc. economist Tomo Kinoshita said yesterday that Japan’s struggle to exit deflation means the higher objective may not be attained until after 2015.

“Two percent is a very ambitious target,” Kinoshita said in Tokyo. “The government and Bank of Japan have tried various means of getting out of deflation, but they have yet to produce a result.”

Japan’s consumer prices excluding fresh food, a benchmark monitored by the central bank, fell 0.1 percent in November from a year earlier. The economy has been gripped by deflation since the late 1990s, caused by burst stock and land-price bubbles, and the ensuing hobbling of the financial system by non-performing loans.

Yen Slips

The yen weakened for a second day yesterday after a draft document obtained by Bloomberg News said Japan’s government strongly expects the central bank to conduct bold monetary easing under a clear price target.

The Japanese currency slipped 0.3 percent to 88.18 per dollar as of 6:06 p.m. in Tokyo, after dropping 1 percent on Jan. 9. It depreciated to 88.41 on Jan. 4, the weakest level since July 2010.

The BOJ policy board next meets on Jan. 21-22, with RBS Securities Japan Ltd. predicting a 40 trillion yen ($454 billion) expansion of its asset-purchase fund to 116 trillion yen this year and an extension of the program beyond December 31.

Consumer prices excluding fresh food haven’t advanced 2 percent for any year since 1997, when a national sales tax was increased. Abe is scheduled to unveil his first stimulus package today.

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