MNI BRIEF: Business Inflation Expectations Solid - BOJ Tankan

Bank of Japan officials have been heartened by solid inflation expectations among corporate executives, which will likely pave the way for firms to raise wages next spring, the BOJ December Tankan showed on Wednesday.

Both short- and medium-term inflation expectations at Japanese firms rose in the three months to December, endorsing the BOJ’s view that inflation expectations are rising and firms are more positive about raising retail prices. (See MNI POLICY: BOJ Policy Shift Needs Firm Tankan Inflation View)

On average, companies saw the annual consumer inflation rate at a record high of 2.7% a year from now, up from 2.6% in September. They also saw a record high 2.2% rise in three years and stayed at a record high 2% gain five years ahead, compared with increases of 2.1% and 2.0%, respectively in the September survey.

The results were consistent with the latest view that inflation expectations have risen moderately and support the BOJ's assessment of corporate price-setting behaviour.

The BOJ sees Japan’s core inflation rate rising close to 4% in the coming months but the Bank doesn’t expect the price rise to be sustainable without considerable wage hikes.