Despite strong signs, BOJ likely to add to stimulus

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Despite strong signs, BOJ likely to add to stimulus

The Bank of Japan is expected to boost its stimulus later this year, even though there have been signs of a stronger economy and emerging concern that the yen has fallen too far, a survey of economists shows.

The latest view from some officials inside the BOJ is that further monetary easing to shore up inflation would be a counterproductive step for now, according to people familiar with the talks. Policy makers are concerned it could trigger declines in the yen that damage consumer confidence.

The Japanese currency has lost about 8 percent against the dollar since BOJ Gov. Haruhiko Kuroda added stimulus on Oct. 31 in the face of the most opposition a governor had seen since 2008.

The weak yen is an obstacle to an expansion of monetary easing, according to seven of 24 economists surveyed Friday, including those at UBS Group AG, JPMorgan Chase & Co. and Itochu Corporation.

“The government is strengthening its stance for not allowing the yen to fall further as they want to spread the benefits of cheaper oil prices before nationwide local elections in April,” said Kyohei Morita, an economist at Barclays Plc. “It’s unavoidable for the BOJ to soften its firm stance to achieve its price target in or around fiscal 2015.”

Indications of concern at the BOJ about risks from a weak yen prompted two economists in the survey to push back their forecasts for additional BOJ stimulus.

One of them, Junko Nishioka at Sumitomo Mitsui Banking Corporation, said she now forecasts the central bank will hold its fire at least through the end of the year, dropping a previous projection for action as early as April.

“I had thought the BOJ considered a weak yen as positive for the economy,” Nishioka said. “But with the report, I began to think that BOJ officials are starting to put more weight on the negative aspects of a weak currency, such as damage to sentiment and higher costs of imports.”

The head of Japan’s biggest business lobby, Keidanren, in September said the negative impact on Japan’s economy would increase if the yen weakened any further. A weaker yen pushes up the cost of gasoline, increasing costs for drivers, said Sadayuki Sakakibara. At the time, the yen was trading around 109.5 per dollar. It was near 119 per dollar in Tokyo on Friday.

Forty-two of Japanese companies that failed in November cited the yen’s drop as a contributor, bringing the total number of bankruptcies associated with the currency in the first 11 months of the year to 301, almost triple that of the same period in 2013, according to Teikoku Databank.

Japan’s economy has shown a few signs of perking up, as a more-competitive exchange rate helped stoke a 12.8 percent increase in December exports that added steam to industrial production.

Japan’s economy expanded at an annualized 2.2 percent in the fourth quarter, less than the median projection of analysts for a 3.7 percent increase, according to data released Monday.

Still, the BOJ’s key gauge of inflation slowed to 0.5 percent in December, which is just a quarter of the 2 percent target that Gov. Haruhiko Kuroda has set.

That’s a key reason why 16 of the economists in the survey still expect the BOJ to increase easing.

Eleven of them forecast action by the end of October. Of those, two predict the BOJ will move in April, four in July, and five in October.

“Chances are extremely low that the BOJ will achieve its 2 percent price target without further stimulus,” said Masaaki Kanno, an economist at JPMorgan. “The need for additional easing is low for now as there is dissatisfaction in some quarters about the weak yen and also political pressure.”

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