Kuroda Won’t Rule Out CPI Dipping Below Zero, Keeps Stimulus

by Toru FujiokaMasahiro Hidaka

A woman browses clothes at a fashion store in the Harajuku district of Tokyo. Twenty-seven economists in the Bloomberg survey forecast consumer prices will decline around the middle of this year. Photographer: Kiyoshi Ota/Bloomberg

(Bloomberg) -- Governor Haruhiko Kuroda said he couldn’t rule out the risk of consumer prices falling in Japan after the central bank on Tuesday maintained record monetary stimulus.
The BOJ kept a pledge to expand the monetary base at an annual pace of 80 trillion yen ($660 billion), as forecast by all 34 economists in a Bloomberg News survey. Kuroda stuck to his view that the world’s third-largest economy will continue a moderate recovery and that the central bank is still on track to meet its inflation goal.
Kuroda is counting on the benefits of lower oil prices to wash through the economy, spurring growth and inflation in the longer term. The immediate focus is on the outcome of wage talks between companies and their unions that will indicate whether businesses are
passing along more of their record cash holdings and profits to workers.

“The BOJ won’t add stimulus for a while,” said Koya Miyamae, an economist at SMBC Nikko Securities Inc. “They are likely to defend their position by pointing to encouraging signs in the wage talks and an expected fading impact of oil on consumer prices.”
The yen weaken 0.1 percent to 121.43 per dollar at 5:25 p.m. in Tokyo. It’s slumped about 22 percent since Kuroda began the record easing in April 2013. The Topix index of shares closed 0.8 percent higher.

Key Gauge

While acknowledging the possibility that inflation could turn slightly negative for a short time, depending on oil-price moves, Kuroda stuck to his view that the central bank’s 2 percent target will be achieved. Inflation expectations have been maintained and the underlying price trend remains intact, he said at a briefing.
Consumer price gains will pick up strongly in the second half of the fiscal year starting in April, reaching the BOJ’s goal “in or around” the fiscal period, Kuroda said. The central bank will adjust policy as appropriate, should its target be at risk, he said.
Nearly two years since the BOJ introduced unprecedented easing, its main inflation gauge has slowed to just one-tenth its 2 percent target as tumbling oil prices ripple through the economy. Twenty-seven economists in the Bloomberg survey forecast consumer prices will decline around the middle of this year.
The BOJ’s estimate of CPI dropping to about zero contrasts with its view last month that it was “likely to slow.”
Twenty-three of 34 economists in the Bloomberg survey expect the BOJ to expand stimulus by the end of October, down from 26 in a survey last month. Eleven predict no further easing, up from 8 in the previous survey.

Union Talks

Companies including Japan’s biggest automakers are expected on Wednesday to announce counterproposals to union demands in talks that Kuroda has said he’d watch with “strong interest.”
The talks, in which companies and union leaders work out wage plans for the fiscal year starting in April, follow a campaign by Prime Minister Shinzo Abe to persuade corporate Japan to give bigger raises.
There are signs that some companies will increase outlays. Toyota Motor Corp. offered to boost its monthly base wage by 4,000 yen, one-third less than what its labor union requested, but still a 1.1 percent raise, according to a spokesman for the Toyota Motor Workers’ union. The company forecasts a record profit for the year ending this month.
The challenge for Abe is to secure pay gains for households that outpace the rising cost of living. Last year’s sales-tax increase and higher costs of imported products brought by the yen’s declines pushed down real incomes, crimping spending in the world’s third-largest economy.
The economic environment is conducive for pay to increase, Kuroda said, predicting real-wage gains are likely to accelerate from April.