BoJ’s sees low chance of beating deflation in 2011
TOKYO: Bank of Japan board member Miyako Suda said the nation probably won't overcome deflation in the year starting April, an outlook that conflicts with the central bank's forecast of moderate inflation in the year.
"Chances of overcoming negative core consumer prices in the next fiscal year aren't high," Suda said in a speech in Yamagata, northern Japan, today, referring to the 12 months starting April. "It will take a while to beat deflation."
Suda, the board's longestserving member whose term expires in March, refrained from offering any proposals to beat more than a decade of price declines. The central bank in October cut its interest rates to close to zero and created a 5 trillion-yen ($60 billion) fund to buy government and corporate debt as well as riskier instruments including exchange-traded funds.
"Given that Suda is a relatively hawkish member of the board, the fact she said prices will keep falling suggests the BOJ may delay ending its comprehensive easing program," said Naoki Iizuka, a senior economist at Mizuho Securities Co. in Tokyo. "There's no way the conditions necessary for price increases will be set in fiscal 2011."
Suda is the first board member to indicate deflation may linger beyond next year since the BOJ policy board forecast in October that core consumer prices will rise 0.1 percent in fiscal 2011. Prices by that measure, which excludes fresh food, fell 0.6 percent in October, the 20th straight drop.
The rebasing of the price index next August also lowers chances of overcoming price declines, Suda said.
The statistics bureau will reshuffle the basket of goods used to measure CPI, a move that Goldman Sachs Group Inc. estimates may lower the inflation rate by 0.4 percentage point.
Suda said that risks for the economy may linger as the yen's advance against the dollar clouds the outlook for growth. -PB News