Companies are forecasting sustained price gains, providing support for the Bank of Japan’s campaign to generate stable inflation.
They forecast inflation of 1.5 percent per year, unchanged from three months ago, the BOJ reported Wednesday. Companies see prices rising 1.6 percent from a year earlier in three years, and gaining 1.7 percent in five years.
BOJ Gov. Haruhiko Kuroda has cited rising inflation expectations, along with a closing of the output gap, as key drivers to achieve the bank’s 2 percent price target.
The data may reduce pressure on the BOJ to add stimulus as companies increase investment, supporting a recovery in the economy.
“The outlook is for inflation rising as a trend,” said Koya Miyamae, senior Japan economist at SMBC Nikko Securities Inc. “The BOJ seems to focus more on the trend in prices rather than how much prices will rise by 2015, so these data will be used as a reason to refrain from additional easing.”
In an interview last week, Prime Minister Shinzo Abe said Japan is no longer in deflation and that the economy has weathered the effects of April’s 3 percentage point consumption tax increase.
Base wages excluding overtime and bonuses rose 0.2 percent in May from a year earlier, the first increase in 26 months, data released Tuesday showed. Total pay rose 0.8 percent.
Overall consumer prices rose 3.7 percent in May, the fastest since 1991 and almost five times faster than income growth, squeezing the spending power of households. Kuroda said last month he is “fairly bullish” on the outlook for prices compared to market participants and economists.
Consumer prices excluding fresh food will rise 1.1 percent in the year from April 2015, excluding the effect of the sales tax rise, according to economist forecasts in a Japan Center for Economic Research survey released June 6. The median forecast by BOJ Policy Board members for the same period was 1.9 percent, according to an April report.
Sentiment among large manufacturers in Tuesday’s “tankan” report fell to 12 from 17 as households cut spending following the tax rise. Large companies across all industries plan to lift capital spending 7.4 percent in the fiscal year through March, the report showed.
Fifty-eight percent of economists surveyed last month see the BOJ easing more this year, although the number was down from 75 percent in May, polls showed.
The yen has gained about 3.7 percent against the dollar this year after an 18 percent plunge in 2013, reducing upward pressure on prices.
The BOJ surveyed 10,427 companies between May 28 and June 30 for the quarterly tankan survey. It was the second time the bank included questions on companies’ price forecasts.