Japan firms see no BOJ tightening until 2019 or beyond 2020: poll

[TOKYO] Three-quarters of Japanese companies say the Bank of Japan needs to exit from its super-easy monetary policy but most do not see that happening until next year or beyond, a Reuters poll found.

The results of the monthly Reuters Corporate Survey come as central bank Governor Haruhiko Kuroda - reappointed for a second term - and his two new deputies are set to begin their terms, aiming to spur economic growth and drive inflation to the central bank's so-far elusive target of 2 per cent.

With inflation struggling to accelerate even after five years of Mr Kuroda's aggressive monetary stimulus, the central bank is in no mood to rush to exit, although the governor flagged the possibility if the inflation target is met in fiscal 2019 - a remark he tempered later.

The BOJ has reduced the amount of government bonds it buys under its super-easy policy, in what traders call 'stealth tapering'.

When exiting, market sources said they would expect the central bank to raise its 10-year bond yield target, although most of them predict no such move this year.

Of some 240 companies that responded to the survey, 74 per cent agreed on the need for the BOJ to pull back from its easy monetary policy and two-thirds expected the BOJ's next move to be a tightening of policy.

However, nearly three-quarters of firms did not expect BOJ action this year.

The biggest portion of respondents at 38 per cent, did not expect the BOJ to change policy until sometime in 2020 or later.

Most analysts predicted the central bank would keep the long-term bond yield target at zero per cent throughout the year, a Reuters poll showed last month.

"I was a bit surprised that 38 per cent of companies saw no BOJ action by 2020 or beyond. This shows how companies are unconvinced about sustainability of the economy's momentum,"said Masaki Kuwahara, senior economist at Nomura Securities, who reviewed the survey results.

"They want the BOJ to go slow in tightening policy or even hope for further easing if necessary."

The strong yen and higher long-term rates, which determine corporate borrowing costs, were cited as sources of concern when the BOJ does finally start to curb its stimulus.

"Corporate profits are solid and the economy is in good shape now. The BOJ must head to the exit in order to make some room for future easing, while being ready for the slowdown that will cause," a manager at an electrical appliance maker wrote.

The monthly poll, conducted March 1-15 on behalf of Reuters by Nikkei Research, polled 542 big and medium-sized firms with managers responding on condition of anonymity.

SALES TAX HIKE

The survey found that just over a third of respondents wanted the government to delay a planned rise in the sales tax in 2019, compared with two years ago when 61 per cent of firms backed Mr Abe's decision to delay a tax hike that had been planned for 2017.

However, some 63 per cent of respondents say fiscal spending would be needed to offset any potential economic damage from the planned tax hike. Mr Abe has ordered cabinet ministers to consider ways to offset the impact of a higher sales tax on consumer spending.

The government has twice-delayed a sales tax increase to 10 per cent from the current 8 per cent. When the tax was last increased in 2014, consumer spending was hit hard and the economy suffered a downturn.

Corporate views are split on the impact of the yen's appreciation towards 105 yen earlier this year, with 39 per cent saying it dented quarterly profits and 18 per cent seeing it contributing to profit gains.

Manufacturers were hit harder, with 57 per cent saying the yen's gain dented their profits compared with 18 per cent of non-manufacturers.

"Taken together, Japanese firms can cope with the yen's rises as long as the move is gradual to around 105 yen. The impact should be limited, unless it accelerates beyond 100 yen," Mr Kuwahara said.

REUTERS