MNI BRIEF: BOJ Tankan: Business Inflation Expectations Solid

Japanese firms’ one-, three- and five-year inflation expectations, closely watched by the Bank of Japan, were largely unchanged from June and remained solid, the BOJ’s September Tankan survey showed Wednesday.

On average, companies expect consumer prices to rise 2.4% over the next year, the same as in June. They also see inflation at 2.4% three years ahead, unchanged, and 2.4% five years ahead, slightly above the previous 2.3%.

Sales price expectations also stayed firm. Firms forecast a 2.8% rise in prices one year ahead, down slightly from 2.9% in June. They saw increases of 4.3% three years ahead, unchanged, and 5.2% five years ahead, edging up from 5.1%.

BOJ officials were encouraged by the stable outlook, which supports their view that corporate pricing behaviour and wage hikes are feeding into a virtuous wage-price cycle. Companies continue to show appetite for raising retail prices, particularly amid high labour and distribution costs.

However, the survey highlighted risks from weak household demand. Real wages remain negative, and the strain on consumers is set to intensify as food and drink prices for more than 3,024 items are scheduled to increase in October, up 3.4% from a year earlier, further squeezing purchasing power. (See MNI POLICY: BOJ Sees No Need To Rush Rate Hikes)