Japan Inflation Could Near 2% in Fiscal 2014, Miyao Says

Japan’s inflation may rise above 1 percent in the year starting April 2014 and approach a 2 percent target either that year or later, central bank policy board member Ryuzo Miyao said.

Miyao gave the estimates in a speech in Gifu, Japan, today.

BOJ Governor Haruhiko Kuroda and his colleagues need to drive up public expectations for price rises as part of a campaign to pull the nation out of 15 years of deflation. The bank may upgrade its forecast for inflation in fiscal 2014 to at least 1.5 percent at a meeting next week, according to people familiar with the bank’s discussions.

The yen has weakened more than 19 percent against the dollar in six months as the BOJ pushes bolder monetary easing to end falling prices. The central bank will purchase 7.5 trillion yen ($76 billion) of bonds a month and double the monetary base, which includes cash in circulation, over two years, the central bank said April 4.

The bank may continue with quantitative and qualitative easing even after it achieves 2 percent inflation if necessary to maintain stable prices, Miyao said.

Zero-Interest Policy

Miyao, 48, proposed at three meetings this year prior to Kuroda taking office that the bank continue with its zero-interest rate policy until 2 percent inflation is “in sight.” His proposals were rejected by the other eight board members, including former Governor Masaaki Shirakawa and his two deputies who stepped down March 19.

The Group of 20 economies will affirm a commitment to avoid weakening their currencies to gain an advantage for their exports, according to a draft statement prepared for a meeting this week in Washington, Bloomberg BNA reported. The G-20 talks will be the first since the BOJ announced details of its record easing.

Miyao also said that he expects the BOJ’s increased government bond purchases to induce banks and institutional investors to increase purchases of foreign bonds.

Debt market volatility spiked after Kuroda unleashed unprecedented easing. The yield on Japan’s benchmark five-year note climbed to a one-year high of 0.32 percent on April 11, more than tripling from the all-time low of 0.095 percent reached last month. The rate fell one basis point to 0.235 percent today.

Miyao told reporters after the speech that these fluctuations may be a short-term phenomenon.

“It’s a temporary movement that reflects supply and demand in a market seeking a new equilibrium point,” he said. “We’ll carefully watch market movements to see if this situation calms down.”

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