27/06/2015 04:34 AST
HSBC Holdings is leading Japanese government bond bulls in questioning central bank Governor Haruhiko Kuroda’s optimism that he can hit his inflation goal.
Several more years of Bank of Japan stimulus and government reforms are needed to spur the labour market recovery necessary to reach the 2% target, said Shuji Shirota, the head of the macroeconomic strategy group at HSBC Securities Japan in Tokyo. The BoJ will expand unprecedented asset purchases in October, pushing the 10-year yield to 0.3% at year-end from 0.485% yesterday, according to HSBC, which has the most bullish forecast for 2015.
“The BoJ’s massive bond-buying stimulus will have to continue for a while as they will be far from reaching the inflation target,” said Shirota. “Monetary policy alone will not achieve a complete exit from deflation. Governor Kuroda must be fully aware of that.”
HSBC’s ultra-bullish forecast stands out in a market that is swinging toward Kuroda’s view the central bank will be able to reach its inflation target around the middle of next year, allowing a tapering of stimulus. The London-based lender says policy makers would need to produce a level of employment not even seen in Japan’s bubble era to achieve that.
To generate the 3% wage growth that BoJ policy-board member Yutaka Harada says is required for stable 2% inflation, the jobless rate would need to fall to 2%, HSBC’s Shirota calculates. The current 3.3% is already close to so-called equilibrium unemployment, and a drop to 2% would mark an unprecedented divergence from that level, he said.
Kuroda himself said last month that Japan is approaching full employment.
Daiwa Securities Co is dubious about how much pay increases will help push up prices in the time allotted.
“Wage growth is of course important, but achieving the BoJ’s inflation target solely through higher salaries would be tough,” said Toru Yamamoto, the chief strategist at Daiwa in Tokyo. To do it by Kuroda’s target date around the summer of next year would be “mission impossible,” Yamamoto said.
Consumer prices excluding fresh food increased 0.1% from a year earlier, the statistics bureau said yesterday, versus forecasts by economists for inflation to be unchanged.
The BoJ last October expanded the stimulus programme that Kuroda introduced in April 2013 in a bid to drive inflation to 2%. The bank will continue with the monetary plan as long as it’s necessary, it said in a statement on June 19.
Kuroda continues to express confidence about meeting his goal, and recently he’s been winning converts.
The number of economists predicting the BoJ will add to its unprecedented easing by the end of October fell to 16 out of 35 in a Bloomberg survey June 8-15 from 21 of 36 polled in May. While a majority still forecast eventual action, 13 now say the central bank will forgo further stimulus, up from 10 last month. SMBC Nikko Securities and Totan Research Co were among banks that dropped expectations for further easing, according to the survey.
Even as HSBC holds its year-end estimate for JGB yields steady, other bond bulls have retreated this year. After the 10- year yield dropped to a record 0.195% in January, the lowest prediction was for it to slide to 0.1%.
Bloomberg
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