BOJ Struggles with Its 2% Inflation Rate Promise

Tradervox.com (Dublin) - Six months after Haruhiko Kuroda, the Bank of Japan Governor, unleashed record monetary easing, economists are yet to be convinced that the 2 percent inflation target will be met. The Bank of Japan is expected to take stronger steps to revive the economy. While the median estimate of BOJ board members released last week showed the bank expects consumer prices to rise 1.9 percent in the 2015 fiscal year -- in line with a 2-percent-in-two-years goal laid out in April -- just two of 34 analysts surveyed see the target met in that timeframe.

With the central bank seen standing pat on the pace of asset purchases until it can assess the impact of an April 2014 sales-tax bump, the onus is now on the government to sustain confidence in the Abenomics project. Prime Minister Shinzo Abe has yet to introduce legislation such as corporate-tax cuts that companies have advocated to boost Japan’s potential.

According to yuichi Kodama, a Tokyo-based chief of economist at Meiji Yasuda Life Insurance Co, the progress on the growth strategy has been slow, and if this continues, investors may lose confidence in Abenomics and stocks could fall. Japan’s benchmark Topix index of stocks -- still the best performer among 24 developed markets this year in the aftermath of Kuroda’s easing and a tumble in the yen that made exporters more competitive -- trailed counterparts last month, signaling waning enthusiasm with Abenomics.

The Topix fell less than 0.1 percent in Tokyo today, a third day of decline as investors weighed corporate earnings and a stronger yen drove down exporters. The Japanese currency gained 0.2 percent to 98.45 per dollar at 4:00 p.m. Fifteen of the economists surveyed said the lack of bolder steps on the growth strategy is undermining the central bank’s reflation campaign.

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