Japanese companies' inflation expectations drop, adding to BOJ's struggle

[TOKYO] Japanese companies cut their forecasts for inflation for coming years, underscoring the difficulty Bank of Japan Governor Haruhiko Kuroda faces as he struggles to hit the central bank's price target of two per cent.

The BOJ's survey of companies' average inflation outlook shows: Japanese companies forecast prices will rise 0.6 per cent in one year, compared with 0.7 per cent forecast in a June survey.

Companies expect one per cent inflation in three years, down from 1.1 per cent projected in June.

Companies also see one per cent inflation in five years, compared with a 1.1 per cent estimate in the previous survey.

The price outlook among companies contrasts with the BOJ's. The central bank has said inflation will reach its two per cent target during the fiscal year ending in March 2018.

Consumer prices excluding fresh food fell for a sixth straight month in August, by 0.5 per cent, and the BOJ's Tankan survey of corporate sentiment released on Monday showed large manufacturers were the least optimistic in more than three years.

"While there is little prospect that the yen will turn to weaken in the coming months, companies are becoming less confident about a rise in inflation in the future," Kyohei Morita, chief Japan economist at Barclays Plc in Tokyo, said before the report was released.

There is a risk companies will be even more reluctant to give pay increases during wage talks next spring, he said.

Mr Morita said the BOJ may implement additional monetary easing at its next meeting ending on Nov 1.

At the previous meeting on Sept 21, the central bank shifted the focus of its monetary stimulus from expanding the money supply to controlling interest rates, pledging to pin benchmark 10-year yields around zero.

BLOOMBERG