February 13, 2015 / 4:03 AM / 4 years ago

Japan core inflation seen cooling, but BOJ to sit tight for now: poll

TOKYO (Reuters) - Inflation in Japan is forecast to slow further in coming quarters pressured by the collapse in crude oil prices, but the Bank of Japan is set to sit tight for now as it assesses the broad impact of the oil slump on consumption and prices.

A Reuters poll of analysts also showed that the BOJ is expected to embark on more stimulus later this year, to top up its latest round launched in October, to support economic growth and safeguard its 2 percent inflation target.

But a patient approach will give the BOJ more time to assess the impacts of a wave of monetary policy easings around the world, including in China, Europe, Australia and Canada - preemptive moves aimed at underpinning growth and fighting off deflationary pressures from falling oil prices.

Stripping out the effect of a sales tax hike in April last year, Japan’s core consumer price index (CPI), which includes oil products but excludes fresh food, is expected to rise just 0.3 percent year-on-year in the January-March quarter, the Reuters poll showed, down from a 0.5 percent projection made in January.

That’s a far cry from the BOJ’s 2 percent goal. Data for December showed annual core inflation running at 0.5 percent.

And, according to the poll, BOJ Governor Haruhiko Kuroda’s quest to defeat almost two decades of falling prices only gets stiffer, with annual core inflation tipped to slow to 0.2 percent in each of the second and third quarter.

“It would be difficult to reverse slowing consumer inflation triggered by lower oil prices even if the BOJ adopts monetary easing,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“But lower oil prices are also expected to work positively on the economy.”

The headline core CPI - including the tax-hike effect - is seen rising 2.3 percent in the current quarter, the poll showed, down from the 2.5 percent projection made in January.

In January, the BOJ cut its inflation forecast for the coming fiscal year to 1.0 percent year-on-year from 1.7 percent projected three months ago. But it roughly maintained its forecast that inflation will exceed 2 percent in fiscal 2016.

But economists say the central bank’s projections are likely to prove too optimistic.

For the fiscal year to March 2015, excluding the sales tax hike, they predict core inflation to rise 0.9 percent, before cooling to 0.6 percent in the next fiscal year starting April - unchanged from last month’s survey.

Governor Kuroda also said the lower cost of fuel may weigh on inflation short-term but it will stimulate the economy and help to accelerate price growth.

Among 16 analysts who answered a question on the timing of the next potential BOJ easing, five each said it would be in either July or at the October 30 meeting.

Three picked the April 30 meeting, one each chose March, and September meetings, while one said sometime next year.

That spread of views is largely in line with the January survey where many expected further monetary easing, if any, to happen later this year.

Much will depend on how the economy fares over the year. The poll predicted annualized growth to slow to 2.4 percent in the January-March quarter, and then expand 1.7 percent, 1.5 percent and 1.4 percent in the subsequent quarters of the 2015 calendar year.

The government will announce October-December growth data on February 16, which is expected to show an annualized 3.7 percent expansion after the economy slipped into recession in the third quarter of last year, a separate survey showed.

Polling by Shaloo Shrivastava in Bengaluru; Editing by Sumanta Dey, Ross Finley & Shri Navaratnam

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