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Bank of Japan Sticks to Record Easing as Inflation Picks Up

Bloomberg, Jan 21, 2014

The Bank of Japan maintained its record easing, as accelerating price gains mark progress in its bid to end 15 years of deflation.

Governor Haruhiko Kuroda’s board stuck to its pledge to expand the monetary base by an annual 60 trillion to 70 trillion yen ($671 billion) today after a two-day meeting in Tokyo, in line with the forecasts of all 36 economists surveyed by Bloomberg News. The BOJ maintained its forecast that core inflation will reach 1.9 percent in the year starting April 2015, excluding the effects of sales-tax increases.

With the BOJ’s preferred inflation gauge at more than half of its target 2 percent pace, analysts from HSBC Holdings Plc. to Daiwa Securities Co. have pushed back forecasts for when the central bank may add to easing. Kuroda’s policy makers may wait to assess trends in wages and the effects of the sales-tax increase in April before deciding on any extra stimulus.

“The BOJ doesn’t need to act now,” Naoki Murakami, chief economist at Monex Inc. in Tokyo and a former Goldman Sachs Group Inc. economist, said before today’s decision. “Inflation is coming along in line with their forecast.”

Consumer prices excluding fresh food rose 1.2 percent in November from a year earlier, the fastest pace since 2008 and approaching the 2 percent target set a year ago. For the final quarter of 2013, analysts estimate inflation was 1.1 percent, according to a separate poll, nearly three times economists’ 0.4 percent forecast in a survey in April last year.

Milk Cartons

The yen was little changed after the announcement and was at 0.1 percent at 104.21 per dollar at 12:41 p.m. in Tokyo. The Topix index declined 0.2 percent.

The BOJ’s inflation forecasts are median estimates of the nine board members.

Nippon Paper Industries Co. said this week it will increase the price of milk cartons as much as 15 percent from April because of higher prices of imported paper and a weak yen.

The percentage of economists predicting an expansion of stimulus between April and June fell to 33 percent from 56 percent three months ago in the latest Bloomberg survey, which was conducted Jan. 10-15.

The number of analysts forecasting the central bank will add to its easing in July or later doubled to 48 percent from three months ago, the survey showed. The rest of the economists see additional loosening this quarter.

Economy Minister Akira Amari said yesterday that there’s still a risk that the economy could fall back into the trend of declining prices that persisted for 15 years.

The strength of Japan’s economic recovery will be tested after the sales tax is increased to 8 percent in April from 5 percent, a move that economists forecast will trigger a 4.1 percent annualized contraction in the second quarter.

Kuroda said last month that risks from the higher levy will be “not so high,” while adding that the BOJ will adjust monetary policy without hesitation if necessary.

“The BOJ may act for political reasons after the sales tax is raised to show its stance to support the economy, given Abe’s efforts to end deflation,” Mitsumaru Kumagai, chief economist at Daiwa Institute of Research in Tokyo, said before today’s announcement.