BOJ on Hold Until at Least 2Q, Former Board Member Mizuno Says

The Bank of Japan will wait at least until the second quarter of 2014 before deciding whether to add more stimulus, as it gauges the impact of an April sales-tax increase, said Atsushi Mizuno, a former BOJ board member.

“It is too early to judge whether additional monetary easing will be necessary” when the levy is raised in April, Mizuno, vice chairman at Credit Suisse AG in Tokyo and a member of the central bank’s board from 2004 to 2009, said in an interview yesterday. “The BOJ has said they have done enough, and will do more if necessary, but collecting evidence supporting the need to do more will take a lot of time.”

Most economists forecast the central bank will loosen its policy further by June to support Japan’s economy in the wake of the first sales-tax increase since 1997. While a 5 trillion yen ($51 billion) fiscal package that Prime Minister Shinzo Abe announced this week will help cushion the blow - and led SMBC Nikko Securities Inc. to raise its economic forecast - a setback to growth would complicate the central bank’s effort to reach a 2 percent inflation target.

Thirty-five of 36 economists surveyed by Bloomberg News forecast no change in policy when the BOJ wraps up a two-day meeting tomorrow, with one predicting the central bank will boost its purchases of Japanese real-estate investment trusts. Twenty-six said they expect it to add to unprecedented stimulus in the first half of 2014, the poll showed.

Corporate Sentiment

Governor Haruhiko Kuroda in April ramped up purchases of Japanese government bonds and other assets, aiming to generate 2 percent inflation within about two years. The monetary base, a measure of money supply, rose to a record 185.6 trillion yen last month, the BOJ said yesterday.

The policy, known as quantitative and qualitative easing, has helped weaken the yen about 20 percent against the dollar in the past year, bolstering exporters’ profits. Sentiment among Japan’s big manufacturers rose in September to the highest since the early stages of the global credit crisis in 2007, a BOJ survey showed this week.

It may be harder next year for the central bank to keep increasing the monetary base at the current pace, Mizuno said. Bonds that the BOJ buys outright through market operations come from financial institutions, which may become less inclined to give up their JGBs in return for central bank deposits, which yield 0.1 percent, he said.

The yield on Japan’s benchmark 10-year government bond was 0.64 percent at 1:21 p.m. in Tokyo, while the yield on two-year notes was 0.1 percent.

Wages Drop

In contrast to rising optimism in the corporate sector, consumer confidence has fallen, as the weaker yen pushes up prices of imported goods and energy - lifting the cost of living for households - while wages stagnate.

A BOJ quarterly survey for September released yesterday showed 25.8 percent of individuals said the economy will worsen in the year ahead, up from 16.8 percent in June.

Consumer prices excluding fresh food rose 0.8 percent in August, the fastest pace since November 2008. Regular wages excluding overtime and bonuses marked a 15th monthly straight drop in the same month.

While cost-push inflation is the only way to achieve the 2 percent inflation target given Japan’s potential growth rate of around 0.5 percent, it reduces real household incomes, Mizuno said.

“The best scenario for the BOJ is that consumer prices go up, Abe’s popularity slides and the government decides to negotiate with the BOJ to reduce the price stability target toward 1 to 2 percent from the current 2 percent,” Mizuno said. “The market understands Abe means to raise prices when he says ending deflation, while most of households think ending deflation means ending economic stagnation.”

Dropping Support

Support for Abe’s cabinet dropped 3 percentage points to 57 percent after he announced the sales tax increase on Oct. 1 from the level in mid-September, according to a poll conducted by the Mainichi newspaper.

As a BOJ board member, Mizuno pushed for interest-rate increases before switching his position when a deepening global financial crisis prompted the central bank to cut the benchmark rate and start buying corporate debt.

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