Japanese consumer prices will rise for the first time in eight years next fiscal year, central bank policymakers forecast, adding that they will keep rates almost at zero to fight deflation. Core consumer prices, which exclude fresh food, will probably rise 0.1 percent in the year starting April 1, compared with a 0.2 percent slide this year, according to the median projection of the bank's policy makers. Economic growth will slow to 2.5 percent next year from this year's 3.6 percent, the board said in a twice-yearly outlook released in Tokyo. ``The bank is firmly committed to continue'' its policy, a statement said, ``until the year-on-year rate of change in the CPI registers zero percent or higher on a sustainable basis.''
Bank of Japan Governor Toshihiko Fukui has said an increase in prices alone isn't enough to prompt an end to the zero-rate policy, in place since March 2001. Executives including Hiroki Jinnai, president of consumer finance company Promise Co., say the world's second-largest economy still needs trillions of yen in excess cash the bank provides each month. ``It's too early for the central bank to abandon the policy and begin to tighten,'' Jinnai, head of Japan's fourth-largest consumer finance company by assets, said this week. ``Bank lending continues to shrink, and many companies are making investments only with cash on hand.'' The benchmark 1.5 percent bond due in September 2014 fell, pushing its yield up half a basis point to 1.49 percent as of 3:23 p.m. in Tokyo. A basis point is 0.01 percentage point. The bank decided earlier today to keep rates almost at zero and to hold the upper limit of the reserves it makes available to lenders at 35 trillion yen ($329.6 billion.) The policy hasn't ended an eight-year slide in bank lending.
Overall Assessment
Fukui yesterday repeated the bank's vow to maintain the policy until consumer prices stop falling at least for a few months and most policymakers are certain prices won't resume their slide. A change will also depend on an overall assessment of the economy's health, Fukui has said. Core prices have risen only once since April 1998. ``It's difficult for the central bank to alter the policy until core prices achieve a gain of at least 0.5 percent,'' said Ryutaro Kono, chief economist at BNP Paribas Securities Japan Ltd. Kazumasa Iwata, one of the central bank's two deputy governors and a policy board member, last month said core prices ``must rise at least 1 percent'' to ensure they won't fall again. The bank's nine policy makers submitted forecasts for prices and economic growth this fiscal year and next. The highest and lowest forecasts were then discarded.
``The Bank of Japan is probably more concerned about the risk of changing the policy too hastily and hurting the economy, rather than the risk of ending the policy too late,'' said Akio Makabe, a visiting professor of economics of Shinshu University. Masaru Hayami, Fukui's predecessor, cut rates to zero in 1999 to avert deflation. He raised the interbank overnight loan rate by a quarter-point in August 2000, over the objections from politicians and the government. Seven months later, Hayami was forced to cut interest rates to almost zero again because the global technology boom faltered and the world growth slumped. ///www.bloomberg.com