Tue, Dec 19, 2017 page10

• Inflation not following BOJ’s script

  DIFFICULT COMBINATION: Japan has seen steady growth, but weak price indices mean the central bank is to lag other major central banks in exiting crisis-era monetary stimulus

  • Reuters, TOKYO
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  Japanese exports accelerated sharply last month, pointing yet again to growing momentum in the world’s third-biggest economy. There was just one catch: Inflation remained stubbornly low and well off the Bank of Japan’s (BOJ) 2 percent target.

  The combination of steady growth and benign consumer prices means the central bank is to lag other major central banks in exiting crisis-era monetary stimulus, with analysts widely expecting BOJ Governor Haruhiko Kuroda to keep the liquidity tap wide open at a meeting later this week.

  “Inflation expectation is in a gradual recovery trend, but a gap between firm economic indicators and weak price indices remains wide open,” Barclays Securities economist Yuichiro Nagai said.

  Indeed, a BOJ survey yesterday showed companies’ inflation expectations heightened only a touch this month from three months ago, despite a tight labor market and business confidence at over a decade high.

  The persistently low inflation — with core prices running at an annual pace of 0.8 percent — was also difficult to square off with the robust performance of Japan Inc, which has benefited from booming exports thanks to upbeat global demand.

  Separate data from the Japanese Ministry of Finance showed that exports grew 16.2 percent in the year to last month, beating a 14.6 percent gain expected by economists in a Reuters poll and accelerating from the prior month’s 14.0 percent increase, led by stellar sales to China and Asia.

  Economists expect that brisk Asia-bound shipments of electronics and solid capital investment in advanced economies are to underpin Japan’s export performance in coming months.

  “The global economic outlook by the IMF and OECD suggests that the world economy will remain resilient for the time being, which will provide favorable export conditions,” Norinchukin Research Institute chief economist Takeshi Minami said.

  The BOJ’s tankan survey on business sentiment last week highlighted that upbeat outlook, showing that big manufacturers’ optimism hit an 11-year high.

  All of this has helped Japan’s economy score its second-longest run of postwar growth. That marked a feather in the cap of Prime Minister Shinzo Abe, whose “Abenomics” stimulus policies have put the nation on the cusp of vanquishing nearly two decades of deflation.

  However, many economists are skeptical that consumer price gains can keep up with growth in overall economic activity.

  Earlier this month, Kuroda signaled that the BOJ might edge away from its crisis-mode stimulus, saying that keeping it for too long could undermine regional banks’ health.

  “The BOJ will likely be forced into cutting its price projections once again in its quarterly outlook report next month,” Nagai said. “That would highlight a distance to an exit from the BOJ’s monetary stimulus.”

  The BOJ quarterly tankan survey on corporate inflation expectations survey showed companies expect consumer prices to rise 0.8 percent a year from now, slightly ahead of their projection for a 0.7 percent increase three months ago.

  The marginal rise in expectations underscored why inflation is still well off the BOJ’s target, with firms expecting consumer prices to rise an annual 1.1 percent three years from now and 1.1 percent five years ahead, unchanged from three months ago, the survey showed.

  On the external front, the news continued to look up for Japan, offering hope that a much-anticipated virtual circle of private sector-led growth would boost consumption and prices.

  The value of exports to China, Japan’s largest trading partner, last month rose 25.1 percent year-on-year to ￥1.38 trillion (US$12.25 billion), the highest monthly amount on record, led by equipment to manufacture liquid crystal displays.

  Shipments to Asia, which account for more than half of Japan’s exports, grew 20.4 percent in the year to last month to ￥3.89 trillion, a record amount.

  Exports to the US rose 13.0 percent in the year to last month, led by cars and excavators, following a 7.1 percent gain in the previous month.

  “The upshot is that net exports should have provided another boost to GDP growth in the current quarter,” Capital Economics senior Japan economist Marcel Thieliant said.

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