Ex-BOJ Executive Says More Easing Hinges on Output, Exports Data

Poor data for exports and industrial output have the potential to force the Bank of Japan into bolstering stimulus later this month, said a former chief economist for the BOJ.

Weak production could destroy the picture the central bank has presented of an economy that’s poised to improve, said Hideo Hayakawa, who went on to be an executive director at the central bank before he retired in 2013.

While data so far indicate the BOJ may be able to leave monetary policy unchanged on Oct. 30, Hayakawa said in an interview in Tokyo on Oct. 16 that policy makers will pay great attention to trade figures to be released next week and then to output numbers due a day before the board meets.

Governor Haruhiko Kuroda has been consistently upbeat about inflation, even as domestic consumption, foreign demand and production have disappointed some observers. About 40 percent of economists surveyed by Bloomberg forecast the BOJ will increase stimulus at the Oct. 30, when it also provides updates on the outlook for inflation and economic growth.

Production and exports are key for the bank to gauge if the economy is finally heading to a recovery after stagnation in the second and third quarters, said Hayakawa, who was chief economist from 2001-2007. Gross domestic product shrank in the April-June period, and is forecast to rebound just 0.6 percent in the three months through September.

Limited investment

Two major culprits for Japan’s “surprisingly weak" expansion are a low potential growth rate and a lack of corporate spending on investment and wages, said Hayakawa, who is now at the Fujitsu Research Institute. Japanese Prime Minister Shinzo Abe has chided companies for their insufficient investment in people and technology at time when some of them are making record profits.

The BOJ will probably lower its inflation forecast for both this year and next at the meeting at the end of the month, Hayakawa said. He estimates the bank will forecast CPI of 0.3 percent to 0.4 percent for this fiscal year and 1.6 percent to 1.7 percent for the following 12 months.

That is far from the BOJ’s target of 2 percent, which Kuroda says will be reached around the six months starting in April next year.

“Still, the bank can put the blame on oil and say the inflation trend is rising,” Hayakawa said. Consumer prices excluding fresh food dropped in August for the first time since April 2013. Stripping out energy as well, they actually rose 1.1 percent.

With dimming prospects for reaching the inflation target anytime soon, the BOJ should switch from its asset purchase program to policy focused on interest rates, he said.

“This is not a quick war,” said Hayakawa, referring to the BOJ’s fight to reach the inflation goal. “This is a trench war. They should be ready for it."

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