Japan firms doubt BOJ price targets, new stimulus seen

Wed Apr 2, 2014 1:36am EDT
 
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By Stanley White

TOKYO (Reuters) - Corporate Japan expects the consumer price index to be just 1.5 percent higher in a year from now, a Bank of Japan tankan survey found on Wednesday -- a sign of how difficult the central bank could find meeting its 2 percent inflation goal by the April 2015 target date.

The survey outcome overlays Tuesday's tankan findings that Japan's fragile business sentiment barely improved in the three months ending March, and the corporate outlook is now considerably weaker than when Japan raised its sales tax in 1997, the last hike before Tuesday's increase to 8 percent from 5 percent.

The findings stem from a BOJ decision to poll companies' inflation expectations, starting with its March tankan survey, to give central bankers more information to guide monetary policy.

Besides a forecast for just 1.5 percent consumer price inflation in a year, the survey also showed that firms expect consumer prices to be rising by a modest 1.7 percent three years

and also five years from now, suggesting the BOJ's two-year plan for guiding consumer prices to 2 percent is overly ambitious and may require additional measures.

The BOJ has kept monetary policy steady since deploying an intense burst of stimulus in April last year, when it pledged to double base money via aggressive asset purchases to accelerate consumer inflation to 2 percent in two years, but speculation could increase that the BOJ will have to ease policy further.

"It is a little painful for the BOJ that the numbers did not come closer to 2 percent," said Shuji Tonouchi, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.

"The BOJ may have to be more flexible with the time element of its price target. We expect the BOJ to ease policy again in the second half of the year."   Continued...

 
Pedestrians walk at a scramble crossing at Shibuya shopping district in Tokyo February 28, 2014. REUTERS/Yuya Shino