Bloomberg News

Japan Revival to Cap BOJ Stimulus as Tankan May Rebound

March 27, 2012

Masaaki Shirakawa, governor of the Bank of Japan. Photographer: Haruyoshi Yamaguchi/Bloomberg

Masaaki Shirakawa, governor of the Bank of Japan. Photographer: Haruyoshi Yamaguchi/Bloomberg

The Bank of Japan’s Tankan survey is likely to show that big manufacturers have become less pessimistic, adding to signs of an economic revival that will bolster the case for capping stimulus measures this year.

The quarterly index of sentiment will rise to minus 1, the best reading since September, according to the median forecast of 20 economists surveyed by Bloomberg News. The gauge was at minus 4 in December, with the negative number meaning pessimists still outnumber optimists. The data is due April 2.

The Nikkei 225 Stock Average today erased losses from last year’s earthquake and tsunami as better economic data from the U.S. and signs the European debt crisis is easing indicate the world is moving nearer to sustainable growth. At the same time, entrenched deflation in Japan means lawmakers may push for the central bank to buy more government bonds. Governor Masaaki Shirakawa told the parliament today that yields may rise if the BOJ is perceived as financing the government.

“Legislators are likely to keep pushing for more easing because deflation won’t go away even if the BOJ eases further in April,” said Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo and a former central bank official.

The yen’s slide of about 9 percent from a post World War II high against the dollar in October is helping automakers sell more of their vehicles overseas, while gains in capital spending are also aiding a recovery. The Tankan will show that confidence among large service providers rose to 5, the highest since June 2008, from 4 the previous quarter, according to analysts’ median estimate.

Stock Gains

The Nikkei rose 2.4 percent, taking this year’s gain to 21 percent, after Federal Reserve Chairman Ben S. Bernanke said yesterday that accommodative monetary policy is still needed to cut unemployment in the U.S.

“If purchases of government bonds are viewed as so-called monetization, meaning a central bank buys debt aimed at financing the government, bond yields could rise at some point,” Shirakawa told lawmakers today. “This could affect the asset balance of financial institutions, issuance yields of government bonds and economic activities.”

He said the issue needed “careful attention.”

A gain in German business confidence reported yesterday underscored optimism that Europe’s crisis is easing. In Hong Kong last week, James Bullard, president of the Federal Reserve Bank of St. Louis, said that the Fed’s first interest-rate increase since the global financial crisis may come as soon as late 2013 after improvements in the U.S. economy.

Outlook for Easing

In Japan, analysts are split on whether more easing will come next month, with policy meetings due April 9-10 and April 27. RBS Securities Japan Ltd. says the prospect is “receding,” while Adachi says the central bank may expand asset purchases and raise the inflation goal to a range of from 1 percent to 2 percent to affirm a commitment to fighting deflation. Consumer prices excluding fresh food fell 0.1 percent in January.

In Japan, the central bank’s 10 trillion yen ($121 billion) expansion of bond purchases on Feb. 14 helped to weaken the yen, which traded at 82.85 per dollar in Tokyo as of 3:11 p.m. today from a postwar high of 75.35 in October.

Expansion Forecast

A Bloomberg News survey indicates the Japanese economy will expand an annualized 1.7 percent this quarter after a 0.7 percent contraction in the fourth quarter. Bank of America Merrill Lynch has forecast that stock gains will continue, saying in a report that the Tankan “will show how far the yen’s recent softening has fed into improved economic sentiment.”

“The economy will be on a firm footing this quarter and next, so there isn’t really much need for more stimulus,” said Takahide Kiuchi, chief economist at Nomura Securities Co. (NCLZ) in Tokyo. “I don’t think there will be any formal government calls for more stimulus unless the yen appreciates.”

Toyota Motor Corp. (7203), Asia’s largest carmaker, last month raised its profit forecast 11 percent as sales rebounded in the U.S. Still, President Akio Toyoda said last week that the Japanese currency remains too strong, and needs to weaken to about 95 to 100 to be at “an appropriate level.”

Tensions over the central bank’s role in spurring growth and ending deflation were highlighted last week by lawmakers who said that BNP Paribas SA economist Ryutaro Kono was a bad choice for the Bank of Japan (8301)’s policy board. Takeshi Miyazaki, a lawmaker in the ruling Democratic Party of Japan and a leader of an anti-deflation group within the party, said that the candidate should be someone more in favor of monetary easing. Kono wasn’t available to comment yesterday.

‘Adverse’ Effects

In a March 24 speech, Governor Shirakawa highlighted risks from keeping monetary policy excessively loose for too long as central bankers seek to strengthen the global recovery from the 2008 financial crisis.

“If low interest rates induce investment projects that are only profitable at such interest-rate levels, this could have an adverse impact on productivity and growth potential of the economy by making resource allocation inefficient,” Shirakawa said at a Federal Reserve conference in Washington.

Japan’s economy, the world’s third biggest, may be benefiting from increased disaster reconstruction work and reduced production disruptions as Thailand recovers from floods. At the same time, rising oil costs, a weaker yen and nuclear plant shutdowns are swelling energy costs, a drag on the nation’s growth. Imports of liquefied natural gas surged 54 percent in February from a year earlier, the finance ministry said in a report last week.

To contact the reporters on this story: Keiko Ujikane in Tokyo at; Masahiro Hidaka in Tokyo at

To contact the editor responsible for this story: Paul Panckhurst at

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