Top Economist Says BOJ Doesn’t Need More Stimulus: Japan Credit

Japan’s top-rated economist says the central bank doesn’t need more stimulus, defying the consensus.

Ryutaro Kono, chief Japan economist in Tokyo at BNP Paribas SA, voted No. 1 by Nikkei Veritas magazine in six of the past seven years, says lower oil prices will stimulate growth and policy makers will favor yen stability. Twenty-six of 33 of economists in a Bloomberg News survey forecast the Bank of Japan will accelerate asset purchases by the end of October to meet a 2 percent inflation target. Ten-year inflation swaps slid to a two-year low of 0.74 percent this week, Meitan Tradition data showed.

“There’s a chance the inflation rate will turn negative in April, but for an energy importer like Japan, the drop in oil will act like a broad tax cut in supporting growth,” said Kono. “The BOJ shouldn’t really take any additional steps to weaken the yen further given how the negative impact is becoming more apparent now.”

BOJ Governor Haruhiko Kuroda said on Thursday an almost 60 percent drop in crude prices from last year’s high in June was a “big plus” for the economy, which fell back into recession following a tax increase in April that sapped consumption. Economy Minister Akira Amari said this week excessive currency weakness or strength are both inappropriate. The number of Japanese companies citing the yen’s drop as a reason for going bankrupt almost tripled to 345 cases in 2014, according to Teikoku Databank Ltd.

BOJ Buying

The BOJ is buying as much as 12 trillion yen ($102 billion) of sovereign debt each month to keep borrowing costs low and pump money into the world’s third-largest economy. That is about equivalent to the Ministry of Finance’s sales of coupon-bearing securities.

The yield on the benchmark 10-year note sank to a record 0.195 percent this month, while those on maturities as long as five years turned negative. The 10-year security yielded 0.29 percent today.

Expectations for consumer inflation over the next decade have also been falling. The 10-year break-even rate, the difference between yields on conventional and index-linked bonds, dropped as low as 0.701 percent this month, the least since the government reintroduced so-called linkers in 2013, data compiled by Bloomberg show.

Inflation Slows

Consumer prices excluding fresh food rose 2.5 percent from a year earlier, the statistics bureau said Friday in Tokyo. That was less than the median projection of 2.6 percent in a Bloomberg News survey of economists. Stripped of the effect of sales-tax increase last April, core inflation -- the Bank of Japan’s key measure -- was 0.5 percent.

While inflation slowed in December, the labor market continued to tighten, with the ratio of jobs to applicants rising to the highest in more than two decades and the unemployment rate falling to the lowest since August 1997.

Kuroda said Thursday inflation was expected to slow due to oil’s decline, while reiterating his projection for core consumer prices to reach the 2 percent goal in or around the fiscal year starting in April.

The outlook for achieving the target has gone from a yellow traffic light to a red, said Makoto Suzuki, a senior bond strategist in Tokyo at Okasan Securities Group Inc.

While falling oil and a stronger yen have raised expectations for additional easing, the effectiveness of bond purchases is reaching its limit, leaving the BOJ short on options, he said.

‘Extremely Sensitive’

The yen has rebounded as much as 5.2 percent since last month reaching the weakest level versus the dollar since 2007. It declined at least 11 percent in each of the past three years, after Shinzo Abe pledged unlimited monetary stimulus during his campaign to become prime minister for a second time in 2012.

Amari said Tuesday that neither the government nor the BOJ had committed to an exact schedule for reaching stable 2 percent inflation. The comments came after Kuroda said in an interview with Bloomberg in Davos last week that the central bank may need to be more creative with policy in the future.

“The government is extremely sensitive to public opinion,” said Akito Fukunaga, the Tokyo-based chief rates strategist at Barclays Plc. “Current policy settings are proving effective in pushing down rates. The BOJ is already on the path to stable 2 percent inflation.”

Barclays joins BNP and Okasan to be among the only five financial firms whose economists don’t expect any additional BOJ stimulus, according to the Bloomberg News survey.

Wages adjusted for inflation dropped for a 17th straight month in November, according to government data. Retail sales unexpectedly fell in December, a report showed Thursday.

Kono, who expects the BOJ to reach its inflation goal, says the focus needs to shift away from monetary policy.

“The positive effects of cheaper oil and a pause in yen weakness will soon become evident in the economy,” he said. “What’s needed now is a structural reform.”

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