• Bloomberg


Companies are forecasting sustained price gains over the next five years, signaling progress in reflating the economy, albeit below the Bank of Japan’s target.

Firms expect annual inflation of 1.5 percent in a year, unchanged from their projections three months ago, the BOJ said Thursday.

They see annual price gains of 1.6 percent in three years’ time, rising to 1.7 percent in five years.

BOJ Gov. Haruhiko Kuroda is counting on rising inflation expectations and an economy growing above its potential to drive price gains that are still halfway to the bank’s 2 percent target.

Prime Minister Shinzo Abe is weighing another sales-tax increase that would risk damaging the growth outlook after an April hike triggered the steepest contraction in five years.

“It’s clear that the deflationary mindset has been wiped out, even if inflation is not as high as the 2 percent the BOJ is aiming for,” said Tsuyoshi Ueno, senior economist at NLI Research Institute. He was speaking ahead of the BOJ’s announcement.

Thursday’s inflation forecasts exclude the effects of a higher sales tax and are average projections. The survey of more than 10,000 companies was conducted from Aug. 27 to Sept. 30.

Households see inflation at 3 percent in a year, according to the median estimate in a separate BOJ survey released on Thursday. Prices will rise 2 percent in five years’ time, the survey of 2,135 people showed. Both forecasts are unchanged from the previous quarter.

Consumer prices excluding fresh food slowed more than forecast in August to 3.1 percent, according to data from the statistics bureau last week. Stripped of the effects of April’s tax increase, core CPI climbed 1.1 percent — short of the BOJ’s target of 2 percent.

Stronger business sentiment and investment plans and signs of resilience in retail sales indicated the economy is crawling back from a 7.1 percent annualized contraction in the three months through June.

Gross domestic product will expand 3.4 percent this quarter, an independent survey of economists found.

Confidence among big manufacturers rose to 13 in September from 12 in June, above an economists’ median estimate of 10, a report showed on Wednesday.

The sales levy rose by three percentage points to 8 percent in April and is set to increase to 10 percent in October next year, pending a final decision by Abe.

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