Bank of Japan redoubles commitment to easing
Central bank's move to double money supply highlighted by deflation's grip on Japan's wallets
The Bank of Japan put on a show of resolve about its ambitious plan to boost the country's money supply at a policy meeting yesterday, as economists had expected, hours after a report highlighted deflation's grip on the economy.
Consumer prices fell the most in two years, the government report showed, underscoring the challenge facing bank governor Haruhiko Kuroda as he aims to meet a 2 per cent inflation target.
The central bank reiterated its commitment to enlarging the monetary base - including physical currency in circulation and assets that financial institutions hold at the bank - by between 60 trillion yen (HK$4.69 trillion) and 70 trillion yen a year.
"We can expect more easing later this year if prices refuse to edge up," said Junko Nishioka, chief economist at Royal Bank of Scotland in Tokyo and a former central bank official. "It's imperative for the bank to clearly communicate its objectives to maintain expectations that prices will rise."
The yen strengthened, paring its slide since November, which has helped boost Japanese exporters' competitiveness.
Consumer prices excluding fresh food fell 0.5 per cent last month from a year earlier, the statistics bureau said yesterday. Overall, prices dropped 0.9 per cent. The data will be no surprise for the Bank of Japan, which said this month that it expects prices to keep declining for "the time being", even after unveiling its plan for unprecedented easing.
In January, the median forecast of the central bank's nine-member board was that the core consumer price index would rise 0.9 per cent in fiscal 2014, which ends in March 2015.
Kuroda, a former finance ministry bureaucrat who oversaw exchange rate policy more than a decade ago and whom for years has advocated more robust monetary easing to end deflation, led his second board meeting since taking over last month.
At his first meeting, on April 4, he led an eight-to-one vote in favour of setting a two-year time frame for reaching 2 per cent inflation.
The bank also committed earlier this month to doubling the monetary base in two years, exceeding analysts' estimates, through increased purchases mainly of government bonds, along with exchange-traded funds.
The easing is pushing up property prices and is likely to lead to higher rents, a key consumer price driver, Nishioka said.
Prime Minister Shinzo Abe is also using his ties with business leaders to try to pressure companies to raise wages, she said.
But price increases last year for petrol, kerosene and other energy-related goods mean Japan's core consumer price index will probably remain negative this month, said Yoshiki Shinke, chief economist at the Dai-ichi Life Research Institute in Tokyo, before the report.
The March CPI figure was probably affected by an increase in television prices last year, Tokyo-based Barclays analysts said in a research report last week, forecasting that prices will start to increase around July.
The report yesterday showed that the price of televisions dropped 19 per cent from a year earlier, and that prices of air-conditioners fell by 18 per cent.