6 Nov 2013
Markets question Japan's inflation target; no expiration date to BoJ bazooka?
FXstreet.com (Barcelona) - There continues to be certain skepticism that Abenomic policies will fail to deliver the inflation mandate promised in the near future, economists say, noting Japan may need to resort to more aggressive policies to produce the expected results.
It has been over 6 months since the Bank of Japan announced a radical shift in monetary policy, and views among BoJ members in relation to the agreed 2% inflation target in a 2 year time-frame are differing, with a growing number raising doubts.
In a recent article published by the Washington Journal late October, it was revealed that over 1/3 of the BOJ board has removed its expectations that the inflation goal may be hit in the time-frame first anticipated.
According to the WSJ: "Three of the nine members on the BOJ board have doubts about whether a 2% inflation rate can be achieved over the next two years. Board members Takahide Kiuchi and Takehiro Sato are both former private-sector economists, and they oppose the economic forecast that says there is a “high possibility of the Japanese economy achieving a price increase of around 2% over the latter half of the projection period.” Both had dissented back in April as well."
Economists appear to share the same line of thinking, with just two of 34 analysts surveyed by Bloomberg optimistic to see the target met by 2015 fiscal year. "Progress on the growth strategy has been slow, if the delays continue, foreign investors could lose confidence in Abenomics, and stocks could fall" " said Yuichi Kodama, the chief economist at Meiji Yasuda Life Insurance.
Another headache for Abenomics is the historical low growth of Japanese wages, which will likely put a cap on inflation. Last week, we reported that Japan’s salaries slid the most since 2010, resulting on lower confidence for sustained inflation to be achieved as it creates a potential squeeze on households. What is more, planned 3% sales tax hike next April 2014 is thought to contract consumer spending by over 4%, despite Abe has committed a 5 trillion yen in stimulus to support the setback.
Bank of Japan Governor Kuroda has pledged to do all that is to be done within its reach in order to meet the price targets. However, at this point, they remain in a 'wait and see mode' maintaining the monthly pace of asset purchases until carrying out further studies over the impact that the sales tax increase may have on consumers.
Whether or not the Yen gets another big leg lower, that will be very much dependable on the next set of monetary policies announced by the BoJ next year. At this point in time though, with prospects of inflation growth failing to meet expectations, the risks for the BoJ to engage in a lengthier easing cycle than currently priced sees Yen risks skewed to the downside.
It has been over 6 months since the Bank of Japan announced a radical shift in monetary policy, and views among BoJ members in relation to the agreed 2% inflation target in a 2 year time-frame are differing, with a growing number raising doubts.
In a recent article published by the Washington Journal late October, it was revealed that over 1/3 of the BOJ board has removed its expectations that the inflation goal may be hit in the time-frame first anticipated.
According to the WSJ: "Three of the nine members on the BOJ board have doubts about whether a 2% inflation rate can be achieved over the next two years. Board members Takahide Kiuchi and Takehiro Sato are both former private-sector economists, and they oppose the economic forecast that says there is a “high possibility of the Japanese economy achieving a price increase of around 2% over the latter half of the projection period.” Both had dissented back in April as well."
Economists appear to share the same line of thinking, with just two of 34 analysts surveyed by Bloomberg optimistic to see the target met by 2015 fiscal year. "Progress on the growth strategy has been slow, if the delays continue, foreign investors could lose confidence in Abenomics, and stocks could fall" " said Yuichi Kodama, the chief economist at Meiji Yasuda Life Insurance.
Another headache for Abenomics is the historical low growth of Japanese wages, which will likely put a cap on inflation. Last week, we reported that Japan’s salaries slid the most since 2010, resulting on lower confidence for sustained inflation to be achieved as it creates a potential squeeze on households. What is more, planned 3% sales tax hike next April 2014 is thought to contract consumer spending by over 4%, despite Abe has committed a 5 trillion yen in stimulus to support the setback.
Bank of Japan Governor Kuroda has pledged to do all that is to be done within its reach in order to meet the price targets. However, at this point, they remain in a 'wait and see mode' maintaining the monthly pace of asset purchases until carrying out further studies over the impact that the sales tax increase may have on consumers.
Whether or not the Yen gets another big leg lower, that will be very much dependable on the next set of monetary policies announced by the BoJ next year. At this point in time though, with prospects of inflation growth failing to meet expectations, the risks for the BoJ to engage in a lengthier easing cycle than currently priced sees Yen risks skewed to the downside.