Some Bank of Japan officials see a growing likelihood the central bank will lower its inflation outlook and again delay the time frame for reaching its target due to cheaper oil prices, said people familiar with the discussions.
Officials at the same time are placing increasing weight on an alternative price gauge that excludes energy and thus shows inflation trends holding up, said the people, who asked not to be named because the talks are private. Any need for increased monetary stimulus will be determined by the next few months’ economic data, they said.
Additional easing won’t be needed if oil prices are the only consideration behind a decision to cut the bank’s inflation forecasts, which are due on Oct. 30 when it releases its next economic outlook report, according to the people.
BOJ Gov. Haruhiko Kuroda had aimed to drive inflation to 2 percent in around two years when he ramped asset purchases up to unprecedented levels in April 2013. The tumble in oil prices forced him to push back the timing, which he now sees around the six months through September next year. Economic contraction and a weak rebound so far this quarter risk adding to his challenges.
“It’s getting harder and harder to achieve the price target around the first half of fiscal 2016 as the downside risks to the economy increase, and the gap between Kuroda’s ‘business as usual’ stance and reality is getting too wide,” said Shinichiro Kobayashi, an economist at Mitsubishi UFJ Research and Consulting Co. “No matter how much Kuroda talks it up, it’s approaching a limit.”
The BOJ’s current preferred inflation gauge, which includes energy prices, fell to zero percent for a third time this year in July, pressured by declines in oil. The central bank in July played up another gauge, which strips out the effects of oil and shows it’s closer to its target.
By that measure, which excludes fresh food and energy, consumer prices rose 0.9 percent in July from a year earlier, after increasing 0.7 percent in the prior two months, according to some of the people.
Only one of 36 economists said the BOJ can achieve its 2 percent inflation goal as the bank forecasts, according to a survey conducted July 27 to Aug. 3. Twelve of 37 analysts in the same survey forecast the bank will add to easing at its Oct. 30 Policy Board meeting.
The BOJ in July cut its inflation forecasts for the three years through the end of March 2018. The median estimate of nine board members is for consumer prices excluding fresh food to rise 0.7 percent in the year through March 2016 and 1.9 percent in the following year.
The bank made those forecasts based on the premise that oil prices would rise from $60 to about $70 by the end of March 2018. Oil in Dubai traded at $47.91 Thursday and hasn’t been above $60 since early July.