UPDATE 4-BOJ projects inflation exceeding 2 pct, keeps bullish view intact

Wed Apr 30, 2014 5:09am EDT

Related Topics

* BOJ keeps monetary policy unchanged as widely expected
    * Maintains upbeat economic, inflation forecasts in report
    * New projection eyes 2.1 pct consumer inflation in
FY2016/17
    * Kuroda maintains upbeat view, adds ready to act vs risks
    * Output up 0.3 pct in March, manufacturers eye drop in
April

 (Adds Kuroda quotes)
    By Leika Kihara and Stanley White
    TOKYO, April 30 (Reuters) - The Bank of Japan projected for
the first time on Wednesday that inflation will exceed 2 percent
roughly two years from now, underscoring its conviction that a
sustained end to deflation is on the horizon without additional
stimulus.
    Governor Haruhiko Kuroda maintained his optimism on the
outlook, saying that he saw no delay in the timing for meeting
the bank's inflation target.
    Kuroda noted that the economic impact of a sales tax
increase this month appeared limited so far.
    But he quickly added the BOJ is ready to expand stimulus
further if risks threaten achievement of the price target.
    "The slump after the April tax hike is within expectations
and so far, household spending is sustaining momentum," Kuroda
told a news conference after a BOJ policy meeting.
    "As a whole, we're making steady progress. But we're still
halfway through meeting the target, so we'll closely monitor the
situation and make adjustments when necessary," he said.
    As widely expected, the BOJ earlier in the day maintained
its pledge to increase base money, its key policy gauge, at an
annual pace of 60 trillion to 70 trillion yen ($588-$686
billion).
    In fresh projections laid out in a twice-yearly report, the
BOJ said consumer inflation will likely reach 2 percent around
the next fiscal year beginning in April 2015, and be sustained 
in a "stable manner" as the economic recovery continues.
    The upbeat projection may reinforce market expectations that
the BOJ will stand pat on policy until July or even longer, a
view that spread after Kuroda last month said he saw no
immediate need to expand stimulus for the time being.
    Prior to those comments, a few economists had expected
further easing as early as the April 30 meeting. Many still 
predict inflation will peak out around May data as the
price-boosting effect of the weak yen wanes. 
    Still, the BOJ maintained its forecast made three months ago
that core consumer inflation will hit 1.3 percent in the current
fiscal year ending in March 2015, and accelerate to 1.9 percent
the following year, excluding the tax hike effect.
    In projections for fiscal 2016, which were issued for the
first time, the central bank forecast core consumer inflation to
reach 2.1 percent, signalling it remains confident its price
target will be achieved.
    "The BOJ emphasises improving job markets as something that
will help achieve it price target even after the boost on prices
from a weak yen fades," said Koichi Haji, chief economist at NLI
Research Institute.
 
    
    NOT SO BRIGHT?
    The BOJ has stood pat since offering an intense burst of
monetary stimulus in April last year, when it pledged to double
base money to accelerate inflation to 2 percent in roughly two
years via aggressive asset purchases.
    The increase in the sales tax - to 8 percent from 5 percent
- has sparked worries that consumers will curb their spending,
threatening the economic recovery that Prime Minister Shinzo Abe
has engineered with aggressive monetary and fiscal stimulus.
    But the central bank has remained optimistic that the
economy can withstand the pain without additional stimulus. It
also sees a tightening job market leading to higher wages that
will help accelerate inflation towards its price target, a point
Kuroda stressed as something that is already happening.
    The BOJ's projections, however, remain much bullish than
market forecasts that see core consumer prices rising just 1.0
percent in the current fiscal year and 0.9 percent the following
year.
    And while the nine board members generally share Kuroda's
optimism on the outlook, differences remained on how quickly or
smoothly they see the price target being achieved.
    Two economists turned board members, Takahide Kiuchi and
Takehiro Sato, repeated their dissent made in October against
the projection that there is a "high chance" the price target
can be achieved. Another member, Sayuri Shirai, disagreed on the
timing for reaching the price target.
    Signs from the economy have been mixed so far.
    Core consumer inflation in Tokyo, a leading indicator of
national trends, jumped to a 22-year high of 2.7 percent in
April in a sign that companies are making progress in passing on
the tax increase to consumers. 
    While total wages rose 0.7 percent in the year to March to
mark the first increase in three months, regular pay fell for
the 22th straight month in a sign firms are hesitant yet to
increase fixed personnel costs. 
    Industrial production rose a less-than-expected 0.3 percent
in March and manufacturers expect output to slide in April, data
showed on Wednesday, a sign the recovery in the world's
third-largest economy remains fragile. 
    The BOJ issues its long-term economic and price forecasts in
a semiannual report produced in April and October of each year.
It reviews the projections in January and July of each year. 
 ($1 = 102.0350 Japanese Yen)

 (Additional reporting by Tetsushi Kajimoto and Kaori Kaneko;
Editing by Chris Gallagher & Kim Coghill)
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