Japanese firms see no need for 2% inflation or more BoJ easing

Japanese companies do not see the need for an aggressive pursuit of a 2% inflation target or additional monetary easing, a Reuters poll showed.

As such, Japan Inc's viewpoint supports the Bank of Japan's (BoJ) recent softer tone on reaching its consumer price goal in the near future.

The Reuters Corporate Survey, conducted from 2-17 February by Nikkei Research, showed that while most firms want consumer inflation to be higher than the current 0.5%, four-fifths were satisfied with levels under 2%.

The survey of 483 large and mid-sized firms showed 38% like to see inflation between 1% and 2%.

As much as 28% preferred inflation around 1%, while 13% wanted lower levels. Some 260 firms answered questions on inflation.

Around 49% of firms saw domestic demand flat this year while 44% saw it expanding a little.

Oil rout

A little over 70% of the companies polled said they saw no need for additional easing despite the plunge in oil prices.

Bold monetary stimulus over the past two years has weakened the yen considerably and many respondents said any further softening will drive up import costs.

The survey also found that a little over two-thirds of firms saw no net gain from the 60% slide in crude oil prices between June 2014 and January 2015, with any benefits from the rout nullified by increases in import costs owing to a weaker yen.

Wages

In addition to concerns about further yen weakness, corporate managers wrote that a 2% inflation goal was unrealistic and unnecessary, and that monetary policy had done all that it could.

One respondent, a manager at an electronics firm, wrote: "The Bank of Japan's monetary policy up until now has already had an impact and we are gradually moving towards a virtuous cycle for capital spending from manufacturers.

"That prices aren't going up is not the fault of monetary policy but rather that companies which are getting fat on profits in the wake of changes in monetary policy have lagged in passing on those rewards in the form of wages."

Last week, the BoJ left its ultra-loose monetary policy unchanged. Undaunted by slowing inflation and plunging oil prices, BoJ Governor Haruhiko Kuroda said he saw no need for stimulus but added he will not hesitate to ease the policy again if conditions warranted.

Analysts polled by Reuters this month said they expect the central bank to roll out further stimulus later this year, topping up measures launched in October 2014, to support economic growth and ensure rises in inflation.