adminTOKYO. — Half a year after Bank of Japan Governor Haruhiko Kuroda unleashed record monetary easing, economists see the bank failing to meet its inflation target, underscoring the case for stronger steps to revive the economy. While the median estimate of BOJ board members released last week showed the bank expects consumer prices to rise 1,9 percent in the 2015 fiscal year — in line with a 2-percent-in-two-years goal laid out in April — just two of 34 analysts surveyed by Bloomberg News see the target met in that time-frame.
With the central bank seen standing pat on the pace of asset purchases until it can assess the impact of an April 2014 sales-tax bump, the onus is now on the government to sustain confidence in the Abenomics project. Prime Minister Shinzo Abe has yet to introduce legislation such as corporate tax cuts that companies have advocated to boost Japan’s potential.
“Progress on the growth strategy has been slow,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo. “If the delays continue, foreign investors could lose confidence in Abenomics, and stocks could fall.”
Japan’s benchmark Topix index of stocks — still the best performer among 24 developed markets this year in the aftermath of Kuroda’s easing and a tumble in the yen that made exporters more competitive — trailed counterparts last month, signalling waning enthusiasm with Abenomics. The Topix advanced less than 0,1 percent, the worst among the group tracked by Bloomberg.
The Topix fell less than 0,1 percent in Tokyo today, a third day of decline as investors weighed corporate earnings and a stronger yen drove down exporters. The Japanese currency gained 0,2 percent to 98,45 per dollar at 4:00pm. Fifteen of the economists surveyed said the lack of bolder steps on the growth strategy is undermining the central bank’s reflation campaign.
Bond investors’ inflation expectations haven’t changed much, said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. He cited a Quick survey carried out October 29-31 that showed the average core consumer price inflation expectation of 140 respondents over the next 10 years edged down to 1,28 percent from 1,35 percent at the end of September.
“The BoJ’s target looks far away, at least if one asks bond investors,” Adachi said in a report yesterday.
Growth slowed to an annualised 2,1 percent in the three months through September from 3,8 percent the prior quarter, Nomura Securities Co. estimated. BNP Paribas SA said the expansion likely slumped to 1,7 percent. Japan is on a path to achieve 2 percent inflation, Kuroda said yesterday in Osaka. The BOJ will adjust its policy as needed to achieve stable 2 percent price increases, he said.
Abe said the current extraordinary Diet session would be one for “getting things done”, reflecting a focus on pushing through legislation for his growth strategy — the “third arrow” of his Abenomics project.
On the table are steps to encourage corporate restructuring to boost industrial competitiveness and the introduction of zones for deregulation in fields from medical treatment to urban development. The cabinet yesterday approved the special zone bill, Economy Minister Akira Amari told reporters.
The yen’s about 12 percent slide against the dollar this year has induced nascent inflation by boosting import costs. Yet price gains remain distant from the BOJ’s target with core prices excluding fresh food, the central bank’s key gauge, rising 0,7 percent in September from a year earlier.
Regular wages excluding overtime and bonuses fell for a 16th straight month in September, showing the potential squeeze on households should inflation become embedded.
The 3-percentage point increase in the sales tax next year is set to cause an annualised 4 percent contraction in the second quarter even as Abe prepares 5 trillion yen in stimulus to cushion the blow. A further two-point rise to 10 percent is scheduled for October 2015.
Japan needs fresh demand to offset the restrictive fiscal policy, and Abe comes up short when it comes to measures to spur business investment, said Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo. The scale and speed of efforts to remove international trade barriers, lower corporate taxes and deregulate are inadequate, he said. — Bloomberg.
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