BOJ Easing Forecasts Cut as Japan Gains on Kuroda Salvo: EconomyToru Fujioka and Masahiro Hidaka
Economists are ditching forecasts for the Bank of Japan to further expand its record easing this year amid signs that a recovering economy may spur inflation.
Thirteen of 20 economists in a Bloomberg News survey completed July 8 saw no extra loosening in the next six months, a reversal from a poll in May. The board will leave the scale of its bond purchases unchanged at the two-day meeting starting today, according to every economist polled in the latest survey.
Governor Haruhiko Kuroda spurned extra steps to limit bond-market volatility in June, convincing more analysts and investors he will refrain from stepping up stimulus following his opening salvo in April. Forecasts due at the end of this week’s policy meeting will give the board’s latest view on how quickly he and Prime Minister Shinzo Abe can push the nation toward a 2 percent inflation goal.
“The BOJ is very reluctant to take any small steps,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. “They are going to hold firm for a while unless something really big happens that forces them to change their price outlook.”
Prices, excluding the effect of a planned sales tax increase, will rise 1.9 percent in the year starting April 2015, according to the median estimate of the bank’s nine-member policy board in April.
An unexpected slide in China’s June exports reported today highlighted the risk that weakness in the world economy will weigh on Japan’s recovery. The International Monetary Fund yesterday pared its global growth forecast for 2013 to 3.1 percent from an April estimate of 3.3 percent.
The MSCI Asia Pacific Index initially pared gains after the release of the Chinese data, which echoed a German report this week showing a decline in May exports. Shares later resumed their climb, with the gauge up 0.9 percent as of 5:34 p.m. in Tokyo ahead of the release of minutes from the most recent meeting of the U.S. Federal Reserve.
In Japan, reports in the past two weeks showed better-than-expected industrial production and retail sales, and large manufacturers turning optimistic for the first time in two years. The economy grew 2.9 percent in the April-June quarter, according to economist forecasts, after the biggest jump in a year in the previous three months.
Abe is trying to put the nation on a sustainable growth path through his so-called three arrows of Abenomics -- monetary and fiscal stimulus, and lowering barriers for investment and hiring. In January, the government announced a 10.3 trillion yen ($102 billion) stimulus package.
Abe’s delay in implementing plans to loosen business rules helped extend a slide in stocks from a near-five-year high in May. A forecast victory for the ruling Liberal Democratic Party-led coalition in an upper-house election on July 21 would help Abe push through his agenda. The grouping is set to exceed the 121-seat threshold needed for a majority in the chamber, according to a survey published by Yomiuri newspaper this week.
“The economy is proving Kuroda right,” said Takeshi Minami, chief economist at Norinchukin Research Institute Co. in Tokyo. “This is the first time in a while that the BOJ doesn’t have to boost stimulus because the economy is moving in line with their expectations”
A six-month slide in prices excluding fresh food ended in May, while BNP Paribas SA and Dai-ichi Life Research Institute expect a report this month to show the first rise in those costs since April last year.
“While Japan’s economy is picking up, uncertainties are still high” regarding overseas economies, said Maiko Noguchi, senior economist at Daiwa Securities Co. and a former central bank official. The outlook for China and the U.S. Federal Reserve’s exit strategy are murky, said Noguchi, who sees more easing in April.
The yield on benchmark 10-year bonds tripled from a low of 0.315 percent to as high as 1 percent after Kuroda’s first meeting three months ago. Historical price volatility of debt maturing in more than a year has fallen to 2.9 percent from 4.7 percent on May 14, the highest since 2003, according to data compiled by Bloomberg and the European Federation of Financial Analysts Societies.
Kuroda showed his resolve not to pander to markets by abstaining from action in June to calm bond markets, said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. Twenty of 23 analysts in June expected the BOJ to take steps ease credit-market volatility that month.
JPMorgan now expects the bank to ease in January, after previously forecasting extra stimulus in October. “We changed our view because of signs of inflation and Kuroda’s determination to avoid incremental steps,” said Adachi, a former BOJ official.