MNI BRIEF: BOJ Tankan: Business Inflation Expectations Rise

Japanese firms' one-year, three- and five-year inflation expectations rose over Q1, holding above the Bank of Japan's 2% target and supporting the view that inflationary norms are changing, the BOJ March Tankan survey released on Tuesday showed.

On average, companies saw the annual consumer inflation rate at 2.5% in March,  up from +2.4% in December. They also saw a rise of 2.4% three years ahead and a 2.3% increase within five years, up from 2.3% and 2.2%, respectively.

The survey showed companies on average expect sales prices to rise 2.9% a year from now, up from 2.8% in December, and they also saw an increase of 4.4% three years ahead, up from 4.2% from three months ago. Respondents also expect to see an increase of 5.2% in five years, up from 5.0%.

The results showed solid corporate appetite to raise retail prices on the back of high labour costs, which in turn will strengthen the wage-price virtuous cycle and increase concern among some board members over the upside risks to prices. (See MNI POLICY: Auto Tariffs To Weigh On BOJ May Hike Chance) 

Evolving private consumption is key for businesses to raise retail prices in or after April, when food makers plan to raise more than 4,200 items of food and drink prices, according to Teikoku Databank’s recent survey.

Bank officials will focus on stable inflation expectations and sales prices, paying close attention to how cost increases – especially rising labour costs – are passed on to consumers in or after April.