October 2, 2018 / 12:06 AM / 10 months ago

Japan Inc's inflation expectations slip after BOJ policy change: tankan

TOKYO (Reuters) - Japanese companies’ expectations for inflation over the next year receded slightly, a Bank of Japan survey showed on Tuesday, after the central bank conceded it will take some time to reach its inflation target.

A woman looks at items outside an outlet store at a shopping district in Tokyo, Japan, February 25, 2016. REUTERS/Yuya Shino/File Photo

Companies surveyed by the Bank of Japan expect consumer prices to have risen 0.8 percent a year from now, slightly below their projection of a 0.9 percent increase three months ago.

Firms expect consumer prices to have risen by an annual 1.1 percent three years from now and 1.1 percent five years ahead, unchanged from three months ago.

“Expectations for the next year will fluctuate based on input prices,” said Norio Miyagawa, senior economist at Mizuho Securities.

“The bigger problem is expectations for the next three to five years are not moving at all, meaning retail prices will not rise. The BOJ is stuck in a long battle to achieve its inflation target.”

The BOJ kept policy steady at a meeting in September after taking steps in July to make its monetary framework more sustainable, such as allowing bond yields to move in a larger range around its zero percent target.

Bank of Japan Governor Haruhiko Kuroda said the BOJ made this decision in response to fears over the side-effects of its prolonged easing.

He has since acknowledged that inflation is taking longer loner than expected to accelerate.

The BOJ’s board has been divided between those who fret over the rising costs of prolonged easing such as low bond market liquidity, and those who insist the BOJ should do more to drive inflation towards its 2 percent target.

The nationwide core consumer price index, which includes oil products but excludes volatile fresh food costs, rose a modest 0.9 percent in August from a year earlier, remaining distant from the central bank’s objective.

The BOJ survey of corporate price expectations comes one day after the tankan showed rising raw material costs and a string of natural disasters that disrupted production sent business confidence at Japan’s big manufacturers to its lowest in more than a year.

The BOJ’s next policy meeting ends on October 31.

Reporting by Stanley White; Editing by Eric Meijer

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