|
 People familiar with its deliberations said the BOJ, which has
failed for two decades to drag Japan's economy from the grip of no
or zero inflation, is preparing to roughly halve its 1 percent
economic growth forecast for this fiscal year, but stand pat on
policy and its prediction that inflation will hit its 2 percent
target in the year from next April.
Private economists think inflation has peaked at barely half the
bank's forecast rate, however, and financial markets had been
expecting the central bank to add to its massive monetary easing,
with speculation growing it could act at its policy meeting on Oct.
31.
“We think the BOJ’s view on consumer prices is overly optimistic,”
said Hiroshi Shiraishi, senior economist at BNP Paribas Securities.
BNP's current expectations for inflation are around 1.8 percent at
the end of 2015, but Shiraishi said global conditions could render
that timeframe optimistic, too.
A sharp slide in Japanese stocks and a rebound in the yen, driven in
part by concerns about global growth, have added to headwinds for
Japan's economy, which is struggling with soft exports and the
chilling effect of a sales tax hike in April.
Tokyo shares are down 10 percent from September's seven-year high,
while the dollar has slid to around 106 yen from a six-year high of
110 yen in the past two months.
The sources said BOJ officials think the market turmoil is temporary
and unlikely to do lasting damage to the economy. They are unlikely
to change their on-hold policy stance unless it becomes a shock
severe enough to derail their forecast of moderate economic
recovery, the sources added.
BOJ Governor Haruhiko Kuroda has stuck to his upbeat tone on the
outlook, stressing that Japan is on track to meet the BOJ's
inflation target as the pain of the jump in sales tax to 8 percent
from 5 percent starts to ebb.
"Japan's economy is expected to continue growing at a pace above its
potential as a trend since the virtuous cycle from income to
spending has been operating steadily in both the household and
corporate sectors," Kuroda told investors in New York last week.
At the Oct. 31 meeting, the BOJ will release new long-term economic
and price forecasts in a semi-annual report that serves as a basis
for policy decisions.
In a quarterly review in July, the BOJ forecast core consumer
inflation would hit 1.9 percent next fiscal year, higher than the
1.2 percent projection in the latest Reuters monthly poll of
economists. The BOJ tips 2.1 percent inflation for the year from
April 2016.
The bank's forecast of 1.0 percent growth this fiscal year is also
much higher than the Reuters survey result of 0.3 percent.
[to top of second column] |
WEAK DATA
Recent weak data has cast a shadow over the BOJ's optimism that the
economy is on course for moderate recovery. Factory output slumped
as companies were saddled with a huge pile of inventory due to
sluggish demand after the April tax hike.
Taking out the effect of sales tax hike, core consumer inflation is
barely above 1 percent. Some analysts warn it may slip below 1
percent in September due to recent sharp falls in oil prices,
despite Kuroda's assurances that price growth will stay above that
level before accelerating to 2 percent.
Economic growth likely slipped slightly below its long-term
potential in the second quarter, BOJ estimates show. This output gap
is a key determinant of future prices.
But the BOJ is keen to avoid making big changes to its rosy price
forecasts, as doing so would ramp up pressure to do more and expand
stimulus further. It is likely to argue that a boost to import
prices from the yen's declines in September will offset downward
pressure on prices.
Having seen profits rise thanks to Prime Minister Shinzo Abe's
stimulus policies, companies are seen boosting capital spending and
wages to lure employees in a tightening job market. That will also
help accelerate inflation, BOJ officials say.
"What's important is that the positive economic cycle remains in
place," one official said.
The BOJ has resisted stepping up stimulus since deploying an intense
burst in April last year, when it pledged to double base money -
cash and deposits at the central bank - via aggressive asset
purchases to achieve its 2 percent inflation target in roughly two
years.
(Additional reporting by Sumio Ito and Yoshifumi Takemoto; Editing
by William Mallard and Will Waterman)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright 2014 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
 |
