Bank of Japan wages PR campaign to prepare markets for inflation slowdown

Thu Mar 12, 2015 1:27am EDT
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By Leika Kihara

TOKYO (Reuters) - Bank of Japan policymakers are sending a concerted signal to investors that they see no need to expand their already-massive monetary stimulus for a second time in response to a slowdown in inflation driven by the fall in oil prices.

Six of the BOJ's nine board members, including Governor Haruhiko Kuroda, went public in the past two weeks to push the message that, while they expect inflation to grind to a halt or even fall in coming months, they remain hopeful that a pick-up in consumption will rekindle consumer prices down the line.

While there was an element of coincidence in the cramming of the events, the fact the fragmented board is speaking with a single voice suggests a carefully-prepared campaign to correct market misconceptions that a temporary slowdown in inflation alone could trigger more monetary firepower.

It also underscores reservations many in the BOJ feel about expanding further an already radical stimulus program, say sources familiar with the bank's thinking.

"If a positive economic cycle remains intact, there's no need to rush into action," one source said, speaking on condition of anonymity.

There is still near-consensus in the market that the central bank will ease again some time this year, as oil price falls push inflation further away from its ambitious 2 percent target.

"The BOJ may consider price declines as temporary and expect inflation to accelerate from next year on. But I doubt if they can sit still knowing that prices will be falling in the coming months," said Hiroshi Watanabe, senior economist at SMBC Nikko Securities, who predicts the BOJ will act in April.

"Falling prices will push up real interest rates, shattering the transmission channels of the BOJ's stimulus program needed to boost private consumption and capital expenditure."   Continued...

A man pushes a cart loaded with his belongings outside the Bank of Japan (BOJ) headquarters in Tokyo in this November 26, 2012 file photo.  REUTERS/Yuriko Nakao/Files