Kuroda Fails to Sway Analysts Forecasting Easing in '14: EconomyToru Fujioka and Masahiro Hidaka
Governor Haruhiko Kuroda is failing to convince economists that the Bank of Japan has done enough to spur 2 percent inflation, with most sticking to forecasts for added easing by the year end, a survey showed.
Nearly all economists surveyed by Bloomberg News said the BOJ will miss its goal in the fiscal year starting next April, underscoring doubts about Kuroda’s confidence in reaching 2 percent in that period. Seventy-five percent forecast more stimulus by the end of the year, compared with 77 percent last month, according to the poll conducted May 2-8.
The divergence in views raises the stakes in the battle for credibility after Kuroda this week said economists have been “consistently wrong” on Japan. Should the governor prove correct, it would add to the stature of a central bank that’s led the country’s charge out of 15 years of deflation. If he’s wrong, the BOJ will face a tough task of regaining the market’s confidence.
“Private economists have been issued a challenge,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. “It’s probably only a matter of time before the BOJ is proven wrong. Their credibility will be damaged once they are forced to boost stimulus.”
Kuroda has confounded forecasts for added stimulus since he unveiled unprecedented easing in April last year.
Sixty-five percent of economists last May predicted the BOJ would boost easing during 2013, according to the Japan Center for Economic Research. October 2013, April 2014 and then July 2014 have, in turn, been favored months for those forecasting extra loosening.
“In the past 12 months, they have been consistently wrong,” Kuroda said, commenting on private economists in an interview with CNBC television from the Asian Development Bank meeting in Kazakhstan. “One year ago they predicted that deflation would continue.”
Kuroda’s record stimulus helped to drive down the yen 18 percent against the dollar last year, boosting the cost of imports for an economy more reliant on foreign fossil fuels following a nuclear disaster in 2011.
The surge in import costs and energy prices helped wrench the economy out of deflation. Consumer prices, excluding fresh food, turned from a decline of 0.4 percent in April last year to a gain of 1.3 percent in March this year.
Price gains will accelerate to the BOJ’s 2 percent goal next fiscal year, Kuroda said after the central bank released its quarterly outlook last week. Median forecasts of the policy board put inflation at 1.9 percent next fiscal year and 2.1 percent in the following year.
Itochu Corp., Societe Generale SA and HSBC Holdings Plc last week dropped forecasts for expanded BOJ stimulus this year after the release of the BOJ’s outlook report.
Kuroda is counting on rising inflation expectations and diminishing slack in Japan’s economy to boost prices and lead to higher wages, fueling a virtuous cycle in the economy.
“As far as prices are concerned, the BOJ is winning,” Hideo Hayakawa, a former chief economist at the Bank of Japan, said in an interview last week. “We already have full employment and consumer prices will approach 2 percent at the end of next fiscal year as a labor shortage begets wage increases.”
That optimism is overdone, according to Junichi Makino, chief economist in Tokyo at SMBC Nikko Securities Inc. Stagnant wages and last month’s 3 percentage point sales-tax increase will add to the burden for households, crimping consumer spending, he said.
Wages excluding overtime pay and bonuses fell for a 22nd straight month in March, dropping 0.4 percent from a year earlier.
Diminishing effects of the weaker yen, which has gained about 3.7 percent versus the dollar this year, will lead to slower price gains from May, said Makino. The currency was up 0.1 percent at 101.57 at 9:12 a.m. in Tokyo.
“The BOJ is too bullish,” said Makino. “The hurdle for the price target is too high.”
It’s possible core inflation will fall below 1 percent as early as July, said JPMorgan’s Kanno, a former central bank official.
“There is little hope for the economy to stay on the BOJ’s projected path, as the higher sales tax will weaken consumer spending,” said Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute Co. “The BOJ will consider additional easing as early as July.”
Minami is among 12 economists in the survey predicting the BOJ will add to stimulus in July. None of the 32 economists who responded to the poll forecast action at the BOJ’s next meeting on May 20-21.