HONG KONG — Deflation remains firmly entrenched in Japan, figures showed on Friday, despite optimistic forecasts from the country’s central bank, highlighting that there are no quick fixes for one of the world’s largest economies.
Prime Minister Shinzo Abe, who took office last December, has made the fight against deflation — the damaging decline in prices, profits and wages that has dogged Japan for most of the last 15 years — a central tenet of his economic policy. At his urging, the central bank committed to a target of 2 percent annual inflation, considered by many economists a healthy level.
On Friday, the central bank, the Bank of Japan, under the leadership of its new governor, Haruhiko Kuroda, put a date on that target: 2015 or early 2016.
“Various indicators are showing signs that inflation expectations are heightening as a trend,” Mr. Kuroda said in a news conference on Friday, Reuters reported. “Business and household sentiment is improving.”
“Japan’s economy has stopped weakening and has shown some signs of picking up,” the Bank of Japan said in its economic report. “Looking ahead, it is expected to return to a moderate recovery path around mid-2013.” The bank cited a likely improvement in domestic demand as the increased money supply and other economic measures announced took effect.
The central bank also raised its growth forecasts for this year and the next. The bank said the economy would gradually accelerate to 1.6 percent growth in the fiscal year that ends in March 2016.
The optimistic projections were made as worse-than-expected economic data for March was released by the statistics bureau. Core consumer prices, which exclude food, fell 0.5 percent compared with March 2012, the fifth consecutive month of year-on-year declines.
The news added to the doubts of some economists that Japan’s grinding deflationary era would end soon. The figure “offered another reminder that deflationary pressures remain strong,” Izumi Devalier, Japan economist at HSBC, wrote in a research note. Although a gradual escape from deflation is expected, thanks in part to higher energy prices, she said the inflation rate was unlikely to match what she called the Bank of Japan’s “optimistic projections.”
The hurdle for reaching the inflation target is “getting higher,” Miwako Nakamura, an economist at J. P. Morgan, wrote in a research note.
Shortly after Mr. Kuroda took the top job at the central bank this month, it announced unexpectedly bold steps aimed at reinvigorating economic and price growth. The bank committed to inflating the economy by aggressively doubling its holdings of government bonds in two years. Mr. Kuroda described the program as “monetary easing in an entirely new dimension.” It was widely heralded as a marked change from incremental steps pursued by his predecessors.
The financial markets have welcomed Mr. Abe’s and Mr. Kuroda’s joint efforts. The Nikkei 225-stock index has risen 30 percent since the start of the year, while the yen has fallen 14 percent against the dollar — much to the relief of Japanese exporters, for whom a weaker yen is welcome as it makes their goods relatively cheaper abroad.
Several Japanese corporate giants, including Honda, Toyota and Canon, have cited the weaker yen as a reason for improved earnings and outlooks in recent days.
Honda said its net profit for the financial year that ended in March was up 73.6 percent at 367.15 billion yen, or $3.75 billion, according to Reuters. Mazda recorded a yearly net profit of 34.3 billion yen, after a 107.7 billion yen loss in the previous year.
Growth strategies aimed at stimulating private investment are the most important of the policy arrows in Mr. Abe’s quiver, Kunihiko Sugio, chief investment officer at Invesco Japan, said in a recent research note.
This “arrow,” he added, “is still in Abe’s hand waiting to be fired.”
Article source: http://www.nytimes.com/2013/04/27/business/global/27iht-yen27.html?partner=rss&emc=rss