Bank of Japan Said to See Deflation Stretching Through 2011

Discussion in 'Wall St. News' started by ASusilovic, Aug 5, 2009.

  1. Aug. 6 (Bloomberg) -- The Bank of Japan will probably forecast that declines in consumer prices will extend into 2011 even as the economy recovers, according to people familiar with the matter.

    The estimate would be included in policy makers’ first economic projections for the financial year ending March 2012, scheduled for release in October, the people said. Central bankers have already predicted prices will fall 1.3 percent in the current year and 1 percent in fiscal 2010.

    Prospects for a third year of deflation make it likely Bank of Japan Governor Masaaki Shirakawa and his colleagues will keep interest rates near zero through next year, analysts said. It would also erode profits at companies such as Aeon Co., Japan’s second-largest retailer, which has been forced to offer discounts to attract consumers whose wages are tumbling.

    “The Bank of Japan will hold the key rate at 0.1 percent at least through March 2011 to stop deflation from becoming deeply entrenched,” said Jun Ishii, chief fixed-income strategist at Mitsubishi UFJ Securities Co. in Tokyo. “The central bank will probably consider further policy-easing action” should the risk of spiraling deflation mount, he also said.

    Japan is beginning to emerge from its worst postwar recession as exports improve and manufacturers boost production to replenish inventories. The revival has yet to spread to consumers, who are facing record declines in paychecks and an unemployment rate that economists say will reach an unprecedented 5.8 percent early next year.

    Recovery Threat

    Households, whose spending accounts for more than half of the nation’s gross domestic product, may delay purchases on the expectation that goods will get cheaper, restraining a recovery in the world’s second-largest economy.

    The central bank cut the key overnight rate to 0.1 percent in December, and has since begun buying corporate debt from lenders and offering them unlimited loans backed by collateral to channel funds to companies. The policy board last month extended the credit steps by three months to Dec. 31; some analysts said they’ll need to extend them again.

    “With little room left to trim the key rate, the Bank of Japan will have no choice but to keep the current extraordinary policy measures, including the credit-easing programs, for a long time,” said Akio Makabe, an economics professor at Shinshu University in Matsumoto, central Japan.

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aHfD06Q6K2yo

    Depression ?....March 2011 ?...Good luck !