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Japan corporate inflation expectations stagnate, keep BOJ under pressure

Japan corporate inflation expectations stagnate, keep BOJ under pressure
FILE PHOTO: A woman looks at shoes on sale at an outlet store in Tokyo's shopping district, Japan, December 1, 2016. REUTERS/Toru Hanai/File Photo -
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Toru Hanai(Reuters)
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By Leika Kihara

TOKYO (Reuters) – Japanese companies’ inflation expectations continued to stagnate in the three months to September, a Bank of Japan survey showed, a sign the central bank is making little headway in hitting its 2% price target despite years of heavy money printing.

Companies expect consumer prices to rise an average 0.9% a year from now, unchanged from their projection three months earlier, according to a poll taken by the BOJ as part of its detailed “tankan” survey released on Wednesday.

Firms also said they expect consumer inflation to hit 1.0% three years from now and an annual 1.1% five years from now, both unchanged from three months ago, the survey showed.

The survey underscores the challenge the BOJ faces in changing public perception that price growth will remain stagnant for years to come.

“There’s no change to the fact that Japan suffers from a deflationary structure, which is a combination of excess supply and a shortage of demand,” said Yasunari Ueno, chief market economist at Mizuho Securities.

Japanese firms remain wary of raising prices of their goods and services for fear of scaring away cost-sensitive households, who have held their purse strings tight due to slow wage growth.

The BOJ’s attempt to change such deflationary mindset with a wall of money has failed to fire up inflation to its 2% target, leaving the central bank with little ammunition to fight the next recession.

Japanese big manufacturers’ business confidence worsened to a six-year low in the July-September quarter as the U.S.-China trade war hurt the export-reliant economy, keeping pressure on the BOJ to ramp up stimulus as early as this month.

The BOJ started the survey on corporate price expectations from the tankan in March 2014 to gather more data on inflation expectations, key to its current stimulus programme.

(Reporting by Leika Kihara; Editing by Richard Borsuk)

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