BoJ still seen easing policy in 2014

Shoppers walk through a shopping mall in Tokyo. The Bank of Japan embarked on an intense burst of monetary stimulus in April last year to try and drive inflation up to 2% within a time-frame of about two years.

Reuters/Tokyo

The Bank of Japan will ramp up asset purchases this year although confidence that inflation will move towards the central bank’s target prompted some analysts to push back expectations as to when it will do so, a Reuters poll found.

The central bank embarked on an intense burst of monetary stimulus in April last year to try and drive inflation up to 2% within a time-frame of about two years.

Twenty of 29 economists, surveyed from June 16 to 23, said the bank would increase its purse this year, with a majority saying it would happen at the October 31 meeting. Nine forecast no more action from the BoJ in 2014.

“The BoJ expects the pace of rise in core CPI would accelerate in the latter half of this fiscal year. So it is key whether that happens,” said Yoshimasa Maruyama, chief economist at Itochu Economic Research Institute.

Prime Minister Shinzo Abe unveiled a package of measures on Tuesday aimed at boosting Japan’s long-term economic growth, from phased-in corporate tax cuts to a bigger role for women and foreign workers.

The poll also estimated the central bank would expand the outstanding amount of long-term Japanese government bonds (JGBs) to an annual ¥60tn from ¥50tn now, if it decides to ease further, similar to last month’s poll.

And the central bank is likely to double the outstanding amount of exchange-traded funds (ETFs) to an annual 2tn yen.

Although there are signs Japan is pulling out from nearly two decades of deflation, economists predict the central bank will miss its inflation target of 2% by April next year.  Consumer inflation, excluding the effects of a sales tax increase, will only be 1.1% this and next fiscal year, according to the poll.

Japan’s core consumer prices in April jumped 3.2% from a year earlier, the fastest gain since February 1991 as the sales tax hike boosted prices across the board.

Tokyo raised the sales levy to 8% from 5% on April 1 to pay for bulging welfare costs. The government plans to make a final decision later this year whether to raise the tax again to 10% in October 2015.

The BoJ estimates the sales tax rise added 1.7 percentage points to Japan’s annual consumer inflation in April and 2 points from May.

The poll showed Japan’s capital spending is expected to rise 5% for fiscal 2014, up from a 4.6% climb projected before the revised January-March growth figure.

Data released earlier in June showed Japan’s economy expanded an annualised 6.7% in the first quarter, the fastest pace of growth since July-September 2011, as capital spending unexpectedly jumped 7.6%.

The world’s third-largest economy will grow 0.9% this fiscal year and 1.3% the next, little changed from the poll in May.

“Since the US economy is solid, it will help the nation’s exports but they won’t probably become a leading force in the economy,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Company.

The economy is expected to contract 1.2% in April-June due to a pullback in demand after the tax hike, but will grow 0.6% between July-September and 0.4% between October-December.