Web Stories Tuesday, February 27

TOKYO :Japanese households’ inflation expectations fell in the three months to early December, a survey showed, heightening uncertainty about when the central bank will end its ultra-loose monetary policy.

The data is among factors the Bank of Japan (BOJ) will scrutinise to decide whether inflation will sustainably hit the 2 per cent target, which is the prerequisite for phasing out its massive stimulus. The bank has a policy-setting meeting next week.

While most of the respondents still expected prices to keep rising, the data also highlights that Japan is unlikely to face the kind of wage-inflation spiral that forced U.S. and European central banks to hike interest rates aggressively last year.

In the quarterly survey conducted between Nov. 9 and Dec. 5 on households, 79.3 per cent said they expect prices to rise a year from now, down from 86.8 per cent in the previous poll in October.

Of the total, 76.5 per cent of households expect prices to rise five years from now, down from 80.7 per cent in the previous survey.

The median forecast for inflation one-year ahead fell to 8.0 per cent from 10.0 per cent in October, marking the first drop in over three years and hitting the lowest level since September 2022.

The survey underscores the challenge policymakers face in encouraging households to spend more to support Japan’s fragile economic recovery.

“Through private-public coordination, we’ll ensure wages rise and lead to higher income around summer this year,” Prime Minister Fumio Kishida told ruling party executives.

With inflation exceeding the BOJ’s 2 per cent target for well over a year, many analysts expect the central bank to end its negative interest rate policy sometime this year, with some betting that could happen as soon as April.

BOJ Governor Kazuo Ueda has stressed the need to keep monetary policy ultra-loose until the cost-push inflation is replaced by price rises driven more by domestic demand, and accompanied by higher wages.

However, 56.2 per cent of households surveyed said they felt worse off compared with a year ago, a ratio was roughly unchanged from 57.4 per cent in the previous survey.

Of the total number surveyed, 41.6 per cent said they expect to cut spending a year from now with many respondents saying the inflation outlook was the biggest factor determining how much they will spend. Only 8.8 per cent said they were likely to increase spending.

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