April 2, 2015 / 1:11 AM / 4 years ago

Bank of Japan tankan shows Japan companies' inflation expectations unchanged

TOKYO (Reuters) - Japanese companies’ inflation expectations in the Bank of Japan’s March tankan survey were largely unchanged from the previous survey, a sign that inflationary pressure may not be increasing as quickly as the central bank expects.

A shop clerk looks at clothes next to a sales sign at a shopping district in Tokyo March 26, 2015. REUTERS/Yuya Shino

The data on inflation expectations comes one day after the March tankan survey on business sentiment showed that big companies plan to cut capital expenditure in the fiscal year that began on Wednesday due to worries demand will not pick up.

The results are likely to exacerbate lingering worries that the BOJ’s massive quantitative easing program and the government’s economic reforms are not enough to guide prices to the central bank’s 2 percent inflation target.

“The economy has not deteriorated to the point where more monetary easing is needed, but things are not proceeding as smoothly as the BOJ expected,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co.

“The BOJ is likely to fudge the timeline for its price target, and given the circumstances this would be a sensible decision.”

Companies expect consumer prices to rise an average 1.4 percent a year from now, unchanged from their projection three months ago, the BOJ tankan survey showed on Thursday.

Firms polled said they expect consumer prices to rise an annual 1.6 percent three years from now, also unchanged from the December survey.

Five years, from now companies expect consumer prices to rise an annual 1.6 percent, just below the previous survey’s 1.7 percent.

GATHERING INFORMATION

The BOJ started the survey on corporate price expectations from the tankan in March 2014 to gather more information on inflation expectations, key to its stimulus program.

However, the results so far have suggested that its massive purchases of government debt, real estate investment trusts and exchange traded funds have not convinced the corporate sector that prices will rise quickly.

BOJ Governor Haruhiko Kuroda has repeatedly said there’s a high chance of meeting the central bank’s 2 percent inflation target some time around fiscal 2015.

Many private sector economists disagree, saying the decline in oil prices and falling real wages will delay an acceleration in inflation.

The BOJ launched quantitative easing two years ago as part of Prime Minister Shinzo Abe’s pledge to kick-start a listless economy and prevent a return to deflation, which strangled growth for 15 years.

Quantitative easing has lowered bond yields, weakened the yen and helped the stock market rise, but some economists say more structural reforms are needed to raise Japan’s potential growth rate and strengthen domestic demand.

Reporting by Stanley White; Editing by Chris Gallagher and Richard Borsuk

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