BOJ's 2% inflation target unrealistic in 2018: Credit Suisse

[TOKYO] While the Bank of Japan (BOJ) resolutely maintains its 2 per cent inflation target, Credit Suisse Group AG says that's an unrealistic goal.

The Japanese economy is enjoying a cyclical recovery, benefiting from a pick up in global demand, but nothing suggests structural change, said Hiromichi Shirakawa, chief Japan economist at Credit Suisse and a former BOJ official.

"It's difficult for us to say that 2 per cent inflation is achievable in a sustained manner," said Mr Shirakawa, speaking to Bloomberg Television's Rishaad Salamat and Haidi Lun in an interview.

"We are not seeing yet any structural shift in the mindset or behaviour of corporates and households in Japan."

Neither labour productivity nor consumption is improving, while people are still cautious about spending money, and savings rates remain high, Mr Shirakawa said. Companies are finding it hard to raise wages without more flexibility over firing employees, he said.

Given this environment, the central bank is likely to have already given up on achieving 2 per cent inflation and are thinking of normalising monetary policy, but can't drop the target for fear of yen appreciation, said Mr Shirakawa.

While majority of 44 economists surveyed by Bloomberg last month don't expect the BOJ to change its policy in 2018, a large minority of 19 think the central bank will tighten policy in some way this year.

BOJ governor Haruhiko Kuroda reiterated on Thursday that Japan's deflationary mindset isn't disappearing easily, and that the central bank must continue its quantitative easing programme.

BLOOMBERG