Japanese companies think the country will fall short of its 2% inflation goal, despite a flood of stimulus from the Bank of Japan.
The firms believe inflation will be 1.5% a year from now, before climbing to 1.7% in 2017 and 2019, according to a survey of more than 10,000 companies released Wednesday by the central bank.
The inflation survey is the first of its kind, which makes it difficult to draw any conclusions about the success of Abenomics -- the economics strategy championed by Prime Minister Shinzo Abe that hinges on rising prices.
The idea is that aggressive monetary easing, combined with more government spending, could push up prices and end years of deflation, leading to more robust growth for the world's third largest economy.
Masamichi Adachi, a JPMorgan economist, said the data could prove to be an important signpost for the BoJ as it tries to gauge inflation expectations. But the results are difficult to interpret with regard to Abenomics.
Idachi said that some will see the survey as evidence that the business sector does not believe the 2% goal is realistic. Others will argue that 1.7% is close to 2%, and expectations could rise further.
"At least," he said, "the BoJ can argue that firms do not have a deflation mindset anymore, due to the Bank's efforts."
Should the central bank itself determine that Japan does not have enough momentum to meet its inflation goal, investors should be on lookout for more stimulus to enter the pipeline.
Some members of the Bank of Japan have expressed concerns over the central bank's ambitious new monetary policies, warning that overly aggressive action could discourage lending, or produce otherwise unwanted side effects.
The concerns were disclosed in the minutes of the central bank's early April meeting, an event that ultimately produced a pledge to rapidly expand the bank's balance sheet through the purchase of longer-term debt and securities, such as exchange traded MORECharles Riley - May 2, 2013 7:18 AM ET
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