Japan households’ inflation expectations heighten, quarterly survey shows

NEARLY 90 per cent of Japanese households expect prices to rise a year from now, a quarterly central bank survey showed on Friday (Jul 12), a sign of heightening inflation expectations that could help make the case for a near-term interest rate hike.

But households were more pessimistic about current economic conditions compared with three months before, boding ill for the outlook on consumption.

Of the total households surveyed by the Bank of Japan (BOJ), 87.5 per cent said they expect prices to rise a year from now, up from 83.3 per cent in the previous survey in March and marking the highest level in 16 years.

The survey also showed that 82.0 per cent of the respondents expect prices to rise five years from now, higher than 80.6 per cent in the previous survey.

Households’ perception about future inflation is among key factors the BOJ scrutinises in deciding when to raise interest rates, as well as the outlook for consumption and wages.

Companies’ long-term inflation expectations are also converging towards the BOJ’s 2 per cent target. A separate survey earlier this month showed Japanese firms expect inflation to hit 2.3 per cent three years from now and 2.2 per cent five years ahead.

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The surveys back up the BOJ’s view that Japan is making progress towards durably achieving its 2 per cent inflation target – a prerequisite for raising interest rates.

The BOJ next meets for a policy meeting on Jul 30 to 31. While many market players expect the central bank to hike rates this year, they are divided on the likelihood of action this month.

Soft consumption could emerge as a factor that discourages the BOJ to raise rates too soon, some analysts say.

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Friday’s BOJ survey showed an index gauging the ratio of households who are optimistic about the economy versus those who are pessimistic stood at -49.8 in June, worse than -36.1 per cent in March.

The BOJ ended negative interest rates in March on the view that sustained achievement of its 2 per cent inflation target has come into sight. Governor Kazuo Ueda has signalled the chance of more hikes if underlying inflation heads towards 2 per cent, as it projects. REUTERS