BOJ mulls symbolic lift in price forecast

Central bank's move appears to be aimed at raising expectations of end to deflation

PUBLISHED : Saturday, 13 April, 2013, 12:00am
UPDATED : Saturday, 13 April, 2013, 6:26am

The Bank of Japan is considering boosting its consumer price outlook to signal confidence it will meet a pledge to achieve 2 per cent inflation in two years, people familiar with the central bank's discussions have said.

The BOJ may upgrade its view on price gains excluding fresh food to at least 1.5 per cent from 0.9 per cent for fiscal 2014 in its next forecast update on April 26, according to the people, who asked not to be identified.

Policymakers are seeking to assure the public that new governor Haruhiko Kuroda's unprecedented stimulus will help meet the price goal, with the yen dropping about 11 per cent since the previous forecast on January 22.

Kuroda said yesterday that the BOJ won't set a time limit for easing and will continue until it achieves sustainable inflation.

"It will be very challenging to meet this forecast, but it's not mission impossible," said Masamichi Adachi, a senior economist at JPMorgan Chase in Tokyo and a former BOJ official.

"It's a mind game, to some degree, based on raising inflation expectations."

It will be very challenging to meet this forecast, but it's not mission impossible. It's a mind game, to some degree, based on raising inflation expectations
Masamichi Adachi, former BOJ official

"The year-on-year rate of change in the [consumer price index] has recently been at around 0 per cent or slightly negative, but looking to the future, it is expected to turn positive and start picking up," Kuroda said in a speech yesterday in Tokyo, his first since becoming governor last month.

The acceleration will mainly reflect an "improvement in the aggregate demand and supply balance", he said.

Kuroda told reporters earlier this week the central bank has taken all "necessary" and "possible" measures to achieve the 2 per cent inflation goal. The BOJ chief reiterated a pledge to do what is needed to meet the target in two years.

Kuroda and Prime Minister Shinzo Abe are aiming for sustained gains in prices and wages after more than a decade of deflation and three recessions in five years. Prices excluding fresh food - officials' key measure - haven't gained 2 per cent in any year since 1997, when a sales tax was increased.

Economists are sceptical about the BOJ's attempt to reach the price target in two years. Only two out of 40 economists surveyed by the Japan Centre for Economic Research said Kuroda can achieve the goal in the time frame, according to a report released on Wednesday.