Japan companies’ inflation expectations slide in June: BOJ tankan survey

Japanese companies’ inflation expectations fell slightly in June from three months ago, the Bank of Japan’s tankan survey showed, adding to growing doubts over its argument that aggressive money printing will accelerate price growth to its 2 percent goal.

The data on inflation expectations came after Friday’s tankan sentiment survey showed business confidence was subdued in the second quarter, heightening pressure on the BOJ to roll out yet more stimulus to ease the pain from a strong yen.

Companies expect consumer prices to rise an average 0.7 percent a year from now, down 0.1 percentage point from three months ago and some way off the BOJ’s 2 percent target, the tankan survey on price expectations showed on Monday.

The survey underscores the challenges the BOJ faces in trying to achieve its target by flooding the economy with cash, on hope that doing so would prompt companies and households to spend now on expectations that prices will rise in the future.

“The BOJ will probably have to cut its inflation forecasts again and in doing so may ease this month,” said Mari Iwashita, chief market economist at SMBC Friend Securities.

“But it’s hard to explain why further easing would help the economy, when bond yields are already so low,” she said.

The stiff challenge posed by the yen’s rise on exports and weak inflation have heightened market expectations that the BOJ will expand stimulus at its next rate review on July 28-29.

Recent surveys have shown companies are becoming reluctant to raise prices or even cutting them on weak consumption, casting doubt on the BOJ’s view that a broad uptrend in inflation is intact.

But many policymakers, struggling to battle external headwinds with a dwindling tool-kit, are wary of expanding stimulus any time soon.