TOKYO (Reuters) - The Bank of Japan is expected to come up well short of its 2 percent inflation goal despite the latest burst of monetary stimulus, a Reuters poll showed, adding to growing doubts about the BOJ’s strategy to re-energise a long-stagnant economy.
The central bank shocked markets late in October by expanding its monetary easing program in a bid to boost the economy and stoke inflation after a sales tax hike in April stalled growth.
But economists retained their forecasts for consumer inflation, excluding the tax hike impact, at 1.1 percent this fiscal year and next - barely over the halfway mark to the central bank’s 2 percent goal which it expects to achieve in the 2015 fiscal year.
Thirteen of 20 economists polled this week expect any further BOJ easing to happen sometime after June 2015. Others predicted March or April.
“The BOJ’s stance is not to ease policy in an incremental way, so we expect the central bank to keep its monetary policy at the current framework for about one year,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“If the BOJ sees it won’t be able to meet its inflation target, it will extend the timing of the goal and will probably adopt additional steps.”
A majority of economists expect the BOJ may be forced to extend the timeline for reaching its inflation goal, the poll showed, a sign of the daunting task faced by policy makers to pull the world’s third-biggest economy out of nearly two decades of grinding deflation.
Since the start of the easing program in April 2013, the Japanese yen has weakened about 25 percent against the dollar and the Nikkei share average .N225 has soared nearly 40 percent. After the Oct. 31 stimulus jolt, the yen dropped to 7-year lows against the dollar, and stocks raced to their highest levels since before the collapse of Lehman Brothers.
But the yen’s weakness has failed to spur exports, and the stock market exuberance has hardly been reflected in consumer spending, or broad economic growth.
When asked what the central bank would do if it failed to achieve its inflation goal, ten of 19 analysts said it would shift the target while eight said it would expand its quantitative easing program further.
While the Fed has drawn the curtains on its years-long multi-trillion dollar stimulus, economists predict the BOJ will only start unwinding its program sometime after 2016.
BOJ board member Ryuzo Miyao said on Wednesday there is a high chance the bank will begin discussing an exit from its easing program in the second half of fiscal 2015.
Japanese media reported Prime Minister Shinzo Abe will postpone next year’s planned tax increase and call a general election for December in an effort to cement his grip on power before his popularity slides.
The poll, taken before the news, showed economists expect Abe to press ahead with October’s scheduled hike.
Abe has said he will decide whether to proceed with the sales tax hike to 10 percent from 8 percent in October after examining third quarter growth. The April hike by 3 percentage points sparked the biggest economic contraction since the global financial crisis in the second quarter.
The economy is seen growing only 0.2 percent this fiscal year and speed up by 1.2 percent in FY 2015/2016, largely unchanged from the October survey, but below the BOJ’s forecasts of 0.5 percent and 1.5 percent, respectively.
Polling by Sarmista Sen and Deepti Govind; Editing by Shri Navaratnam