BOJ's new price forecasts Friday to be credibility test
By Leika Kihara
TOKYO (Reuters) - The Bank of Japan is set on Friday to project that it will meet its 2 percent inflation target in two years, a forecast analysts say may be too optimistic and could put the bank's credibility on the line.
The central bank, charged with overturning years of dogged deflation, is not expected to come up with any fresh policy initiatives after new Governor Haruhiko Kuroda stunned markets on April 4 by promising to inject about $1.4 trillion into the economy to hit the inflation target in roughly two years.
Instead, the focus will be on the BOJ's economic forecasts to be released in its twice-yearly outlook report and how they compare with private-sector economists, many of whom argue that 2 percent inflation in two years is unrealistic.
"These new BOJ figures will be more a vow of determination rather than credible forecasts," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo.
"It would take a drastic change of corporate behavior for inflation to hit 2 percent in Japan. Companies would really have to believe that prices and sales will start to rise, enough to make them lift wages and spending. That will probably take much longer than two years," he said.
Kuroda has vowed to do what ever it takes to achieve the price target in two years, putting the central bank's reputation on the line to restore an inflation level that has rarely been hit since the early 1990s.
The forecasts in the report are based on the median expectations of the BOJ's nine board members, including Kuroda.
The BOJ is likely to raise its forecast for the fiscal year to March 2015 to show the core consumer price index (CPI) rising about 1.5 percent, sources familiar with its thinking said. That is higher than its current forecast for a 0.9 percent increase and excludes the impact of an expected sales tax increase in 2014. Continued...