Accelerating Inflation Boosts Bets for BOJ to Delay Easing

Accelerating inflation is prompting analysts from HSBC Holdings Plc. to Daiwa Securities Co. to push back forecasts for when the Bank of Japan may add to record monetary easing.

The percentage of economists predicting an expansion of already unprecedented stimulus between April and June fell to 33 percent from 56 percent three months ago in a Bloomberg News survey of 36 economists conducted Jan. 10-15.

With the BOJ’s preferred benchmark gauge showing inflation at more than half of its target 2 percent pace, the central bank may wait to assess trends in wages and the effects of a sales-tax increase in April before deciding on any extra stimulus. Governor Haruhiko Kuroda and his board will keep policy on hold when a two-day meeting ends today, according to all economists in the survey.

“The speed of inflation is the main reason for pushing back my forecast,” said Maiko Noguchi, senior economist at Daiwa Securities and a former central bank official. “The BOJ can take a breath and watch developments in prices and the impact of the sales-tax increase.”

Consumer prices excluding fresh food rose 1.2 percent in November from a year earlier, the fastest pace since 2008. For the final quarter of 2013, analysts estimate inflation was 1.1 percent, according to a separate poll, nearly three times economists’ 0.4 percent forecast in a survey in April last year.

Deflation Risk

A gauge of inflation expectations indicates that investors see the pace of price gains picking up further. The five-year breakeven rate, derived from the difference between Japanese government bond yields and those on inflation-linked debt, was at 1.84 percentage points at 9:48 a.m. in Tokyo, near a 1.89 reading on May 23 that was a record high in data going back to 2009.

The yen rose 0.1 percent to 104.22 per dollar. The Topix index gained 0.2 percent.

The pickup in inflation hasn’t convinced economists that the BOJ can achieve its 2 percent inflation goal without extra monetary stimulus. The number of analysts forecasting the central bank will add to its easing in July or later doubled to 48 percent from three months ago in the latest survey. The rest of the economists see additional loosening this quarter.

Economy Minister Akira Amari said yesterday that there’s still a risk that the economy could fall back into the trend of declining prices that persisted for 15 years.

Sales Tax

Inflation may start to fall short of the BOJ’s forecast trajectory in the second quarter, said Izumi Devalier, an economist at HSBC in Hong Kong.

“In that event, we expect the BOJ to deliver additional stimulus and stick with its inflation target,” said Izumi, who last month pushed back her call for easing to the third quarter from the second quarter because inflation accelerated more than expected.

Economists have revised their forecasts before. In May, 17 of 27 economists in a Bloomberg survey said the BOJ would add to easing in October. Three months later only five predicted such a move by the end of the year.

The strength of Japan’s economic recovery will be tested after a national sales tax is increased to 8 percent in April from 5 percent, a move that economists forecast will trigger a 4.1 percent annualized contraction in the second quarter.

Kuroda said last month that risks from the higher levy will be “not so high,” while adding that the BOJ will adjust monetary policy without hesitation if necessary.

“The BOJ may act for political reasons after the sales tax is raised to show its stance to support the economy, given Abe’s efforts to end deflation,” said Mitsumaru Kumagai, chief economist at Daiwa Institute of Research in Tokyo.

Wages, Yen

Chances of the BOJ reaching its price target within its two-year timeframe are just 30 percent, said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo.

A decline in the yen of nearly 18 percent against the dollar last year boosted the cost of imported energy, driving up consumer prices. Without a similar tumble, inflation pressures will ease, Maruyama said. At the same time, limited wage growth will reduce the spending power of consumers hurt by the higher sales tax, with the economic weakness capping inflation, he said.

Prime Minister Shinzo Abe has urged companies to increase salaries to set in motion what he terms a “virtuous cycle,” where higher consumer spending leads to increased profits, investment and stronger economic growth.

Nomura Holdings Inc., Japan’s biggest brokerage, will raise salaries for about 4,000 staff in April, the company said on Nov. 29.

Labor cash earnings, the benchmark for wages, will increase 0.6 percent in the fiscal year starting April 1, according to the median forecast in a poll of 16 economists by Bloomberg News last month. Overall consumer prices will climb five times as much, increasing 3 percent on the higher sales tax, a separate Bloomberg survey showed.

Before it's here, it's on the Bloomberg Terminal.