Japanese Firms’ Inflation Outlook Steady in Face of Oil Drop

Japanese companies’ outlook for inflation in the world’s third-biggest economy is holding up even as consumer price gains slow because of cheaper oil and a sluggish recovery.

Firms forecast price gains of 1.4 percent one year ahead on average, the same pace as they projected in December, the Bank of Japan said Thursday. They see inflation of 1.6 percent in three years and 1.6 percent in five years.

While Governor Haruhiko Kuroda said last month consumer prices could fall temporarily due to the drop in oil costs, he’s counting on price expectations, shortages of labor and faster growth to spur inflation to a 2 percent goal. A majority of economists surveyed by Bloomberg March 5-12 see the BOJ expanding stimulus by the end of October. For now, companies’ inflation forecasts support Kuroda’s view, said Kazuhiko Ogata at Credit Agricole SA.

“Kuroda is probably growing more confident that the trend in prices remains intact in spite of the plunge in oil,” said economist Ogata. “The central bank will be able to say that inflation expectations are stable, even as inflation as slows.”

April Meeting

The yen has weakened 8.7 percent against the dollar since Kuroda in October expanded the scale of unprecedented monetary stimulus he began two years ago. The Japanese currency rose 0.1 percent to 119.63 per dollar at 10:01 a.m. in Tokyo. The Topix index of shares advanced 1.3 percent.

While corporate profits are soaring to records, Japan’s recovery from last year’s recession has been weak, and large manufacturers see business conditions weakening this quarter, according to data released on Wednesday.

The BOJ’s main gauge of consumer prices, which strips out fresh food and the effects of last year’s sales-tax increase, showed inflation grinding to a halt in February.

The central bank must ease monetary policy further at its board meeting on April 30, said Kozo Yamamoto, a lawmaker in Prime Minister Shinzo Abe’s ruling Liberal Democratic Party, Reuters reported Wednesday.

Inflation expectations among companies are crucial for the BOJ, said Masamichi Adachi, an economist at JPMorgan Chase & Co. said before the release. “If expectations start to clearly fall, that will move the BOJ closer to additional easing.”

Kuroda said on March 20 that the main aim of the central bank’s monetary easing is to change people’s expectations.

“For Japan’s economy to overcome deflation, it was necessary to dispel the deflationary mindset and raise inflation expectations,” Kuroda said.

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