BOJ could ease further early next year on weak prices-Reuters poll

The Bank of Japan could ease monetary policy further early next year, with nearly half of the analysts surveyed by Reuters expecting it to happen in January as consumer prices struggle to meet central bank projections.

Recent revisions in the central bank’s inflation projections have prompted five out of 12 analysts polled by Reuters to push back their expectations for the timing of possible BOJ easing.

The BOJ last month pushed out the timing in which it expects to achieve its 2 percent inflation target by six months to the second half of next fiscal year, indicating it may want to wait and watch a while longer before easing policy.

Analysts, however, expect prices to rise much slower than BOJ forecasts.

“Downside pressure on consumer prices stemming from lower oil prices is waning but the pace of rises in consumer inflation won’t be as quick as the BOJ expects,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

“Also, we probably see the situation clearer early next year how spring wage negotiations are likely to be. We expect the pace of wage recovery won’t accelerate.”

Many analysts see the BOJ’s next policy action will be to expand its stimulus program with five out of 12 projecting the central bank could ease again in January, according to the poll taken between Nov. 5 and 11.

Two analysts said the BOJ is likely to ease again in March and another two said the central bank could do so in April. The remaining three analysts each chose November, December of this year and next October.

The poll also found the world’s third-largest economy probably shrank slightly in July-September, which would be the second straight quarterly contraction.

However, growth is expected thereafter with the economy seen expanding at an annualized 1.1 percent in the current quarter and staying on a moderate growth trend between 1.0 percent and 2.0 percent through the next fiscal year, the poll showed.

Japan’s third quarter GDP will be released on Monday.

“I think the economy will rebound led by domestic demand. Consumer spending will probably recover relatively well as the wage environment is not so bad,” said Taro Saito, director of economic research at NLI Research Institute.

“And firms are expected to carry out their capital spending plan as corporate earnings are good.”

Japan’s core consumer price inflation – which includes oil products but excludes volatile fresh food prices – will rise 0.1 percent in the current fiscal year and will grow 1.0 percent next fiscal year, according to the poll.

Asked if the government needs to compile a supplementary budget to help the economy, most of the analysts surveyed selected “yes” and six said the size of the budget needs to be between one and three trillion yen ($8.1-$24.4 billion).

Three said between four and six trillion yen, the poll showed.

A separate survey showed most Japanese companies do not expect the flagging economy to recover until well into next year at the earliest, as a China-led slowdown keeps overseas demand weak and consumer spending at home remains sluggish.

Source: Reuters