Japanese Households’ Inflation Expectations Remains Weak

Shinzo Abe

A survey by Japan’s central bank showed inflation expectations by households in the country remained weak for the June-September quarter, dipping to its lowest level in almost four years.

The share of Japanese households that expects a rise in prices one year from now was 65.1 percent in September, according to the report of a quarterly survey by the Bank of Japan released on Thursday. The ratio of the households dropped from the 72.4 percent reported in June to the lowest level since December 2012.

The government of Prime Minister Shinzo Abe has been on a drive to return the economy of Japan to a path of growth for years. The BOJ’s target of 2 percent inflation is a part of efforts to drive expansion, but this has remained out of reach so far.

The households’ inflation expectations surged following the commencement of the BOJ’s large-scale bond-buying program back in April 2013, with this aimed at driving growth. They reached their peak five months after the adoption of the program by the Japanese central bank.

However, the decline that set in in subsequent months suggested the expansionary monetary measure may have had just temporary effect. Falling household spending and consumer prices have further made the apex bank’s inflation target harder to attain.

This has led many economic experts to write off the efficacy of spending by the government to drive growth.

The latest survey also showed that fewer households expect inflation to rise five years from now – 80.1 percent, compared to 83.6 percent in June. Percentage of the households which said they felt prices increased from a year ago also fell to 64.5 percent, a decline from 73.1 percent seen in June and the lowest since June 2013.

However, another index in the survey which gauges the view of households on the state of the economy showed an improvement of 4.2 points to minus 23.1, from minus 27.3 in June.

The households’ confidence index is arrived at by subtracting the ratio of households that believe the economy has worsened from those who think it has improved. A negative figure indicates a greater number of households feel conditions of the economy have become worse.

Another BOJ quarterly survey released last week showed business confidence among largest manufacturers in Japan was at its weakest since the government began its spend-for-growth program, which has been christened Abenomics.

In the survey of more than 10,000 Japanese companies, the reading of business confidence among large manufacturers remained unchanged at six. But that for big non-manufacturing companies slumped to 18 from 19.

The closely-monitored tankan report showed slight improvement in confidence among medium and small-scale manufacturers, although slightly more of those in the latter group felt economic conditions have deteriorated.

Meanwhile, the BOJ has revealed that it would shift emphasis from interest rates to 10-year government bonds, according to The Business Times. Governor Haruhiko Kuroda said the central bank would purchase necessary amount of benchmark instruments to ensure their yield is kept steady at nearly zero. The bank will also reduce its longer-date bond holdings.