BOJ may use inflation forecast to end deflation

As the Bank of Japan (8301) prepares to boost its inflation forecasts this week, analysts from Goldman Sachs Group Inc. to JPMorgan Chase & Co. say the estimates may themselves be used as a tool for ending deflation.

The BOJ may indicate that its 2 percent inflation target will be reached by spring 2015, the Nikkei newspaper reported April 18. The central bank may upgrade its view on core price gains to at least 1.5 percent for the year ending March 2015, people familiar with officials’ discussions previously told Bloomberg News.

Central bank Governor Haruhiko Kuroda, who this week oversees his second board meeting, says stoking inflation expectations can unlock pent-up demand and spur credit growth by alleviating concern real debt burdens will rise. The BOJ risks losing credibility unless prices stop dropping in coming months, with a key gauge showing a 0.3 percent decline in February and analysts estimating another fall in March.

“It’s a confidence game,” said Masamichi Adachi, senior economist at JPMorgan in Tokyo and a former BOJ official. “The BOJ is trying to use its inflation forecast to convince markets that they can achieve the 2 percent inflation target in two years, even though some market participants may feel this is unrealistic.”

Any forecast for price gains in fiscal 2015 is likely to be 2 percent, matching the central bank’s target, according to five out of six economists in a Bloomberg News survey. The BOJ is yet to indicate whether it will release such a projection.

The highest forecast since the central bank began releasing estimates in 2000 was 1.8 percent for fiscal 2008.


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Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu