Japan Inc. cuts inflation forecast, worrying BOJ

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Japan Inc. cuts inflation forecast, worrying BOJ

Japanese companies cut their forecasts for inflation for coming years, underscoring the difficulty Bank of Japan Gov. Haruhiko Kuroda faces as he struggles to hit the central bank’s price target of 2 percent.

The bank’s survey of companies’ average inflation outlook shows that Japanese companies forecast prices will rise 0.6 percent in one year, compared with 0.7 percent forecast in a June survey. Companies expect 1 percent inflation in three years, down from 1.1 percent projected in June. Companies also see 1 percent inflation in five years, compared with a 1.1 percent estimate in the previous survey.

The price outlook among companies contrasts with the Bank of Japan’s. The central bank has said inflation will reach its 2 percent target during the fiscal year ending in March 2018.

Consumer prices excluding fresh food fell for a sixth straight month in August, by 0.5 percent, and the Bank of Japan’s Tankan survey of corporate sentiment released on Monday showed large manufacturers were the least optimistic in more than three years.

“While there is little prospect that the yen will turn to weaken in the coming months, companies are becoming less confident about a rise in inflation in the future,” Kyohei Morita, chief Japan economist at Barclays in Tokyo, said before the report was released. There is a risk companies will be even more reluctant to give pay increases during wage talks next spring, he said.

Morita said the Bank of Japan may implement additional monetary easing at its next meeting ending on Nov. 1. At the previous meeting on Sept. 21, the central bank shifted the focus of its monetary stimulus from expanding the money supply to controlling interest rates, pledging to pin benchmark 10-year yields around zero. Bloomberg
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