Japan household inflation views hit 2006 high, boost BOJ hike case
Surging Japanese household inflation expectations have hit their highest levels since 2006, hardening the financial case for the Bank of Japan to deliver another interest rate hike this winter.
Japanese households' inflation expectations have surged to record levels, providing central bank policymakers with fresh ammunition to tighten monetary policy further. A quarterly Bank of Japan survey released on Thursday showed 90.4 per cent of respondents expect prices to rise a year from now.
That figure is the highest since comparable data began in 2006, up sharply from 83.7 per cent in the previous poll. Consumers now forecast average inflation of 13.1 per cent over the next 12 months, another record. Longer-term expectations also climbed, with 86.1 per cent anticipating higher prices in five years.
The shift in consumer psychology stems largely from external shocks. A weak yen and supply chain disruptions linked to the Iran war are driving up fuel and import costs, feeding through to wholesale inflation. While household views typically overshoot actual data due to a focus on daily necessities, the broadening of these price pressures is significant for investors.
The data arrives ahead of the BOJ's July 30 and 31 policy meeting, where rates are expected to remain at the current 1 per cent. However, officials are increasingly wary of inflation deviating from their 2 per cent target. "When upside price risks are high as in the case now, a delay in making necessary adjustments to the degree of monetary support could materialise such risks and weigh on the economy," BOJ Executive Director Koji Nakamura told parliament on Thursday.
Markets are pricing in the next move, with former BOJ board member Seiji Adachi expecting a rate hike to 1.25 per cent between October and January. "The impact of rising import prices will show up in consumer inflation around autumn to winter, giving the BOJ reason to raise rates," Adachi said. "Prices are rising for a wide range of goods, so the BOJ will continue to emphasise the risk of an inflation overshoot."
The inflationary backdrop is creating a difficult environment for consumers. Nearly half of those polled, 49.9 per cent, expect economic conditions to worsen over the next year. That is the highest level of pessimism since December 2008, up from 32.8 per cent in March.
