BOJ's Kuroda Optimism on Inflation Goal Challenged

Bank of Japan Governor Haruhiko Kuroda’s optimism that he can meet a 2 percent inflation target is getting a reality check at the nation’s cash registers. Analysis of scanner data for about 350,000 products at 300 supermarkets across Japan shows costs are falling, said Tsutomu Watanabe, an economics professor at the University of Tokyo. A report on Friday showed gains in consumer prices excluding fresh food slowed for a seventh month in February to a one-year low. The cost of cereals, household durable goods and rents fell last month from a year ago, the data showed.

Japan’s bond market is also betting that Kuroda won’t be able to meet his inflation goal during the fiscal year starting April. The break-even rate, which signals bond investors’ inflation expectations, remains at half the BOJ’s target. Sovereign debt has recouped most of the losses it made last month as global central banks responded to slumping commodity prices by keeping monetary policy easy.

“It’ll take at least two to three more years for inflation expectations to be anchored stably at 2 percent,” Watanabe, a former BOJ official, said in a March 20 interview. “Prices didn’t fall sufficiently during the deflation years, with wages probably putting a floor, and that created a huge gap between where prices should have been and where they actually stayed.”