Japanese house inflation expectations were more than two-year highs

By Leika Kihara

TOKYO (Reuters) – Japanese house inflation expectations have risen to a two-year high, with a quarterly survey showing on Tuesday that public signs of rising cost of living are beginning to change perceptions about future price changes.

The results give hope to the Bank of Japan’s efforts to push inflation to its 2% target, partly by changing perceptions of sustained deflation, with aggressive currency easing.

But analysts are questioning whether the recent rise in inflation, driven by rising fuel and commodity costs, has persisted if it has not led to higher wages.

The percentage of homes expected to rise in price a year from now was 78.8%, up from 68.2% in September and up from September 2019, according to a BOJ poll from November 5 to December 1.

In total, 80.8% said they expected higher prices five years from now, compared to 78.1% in the previous survey and the highest level in December 2019.

The survey is among the data the BOJ will discuss at next week’s policy meeting to assess whether the rise in input costs has led to inflation expectations in households.

The ultra-simple policy of nearly nine years has failed to spark inflation in the BOJ’s goal, as slow wage growth has weighed on consumption, and the company is recommending a rise in prices.

The hope of BOJ officials was to get the public out of the way of thinking deflation with a big monetary stimulus.

Wholesale inflation hit a record 9.0% in November due to a rise in the overall cost of goods, while core consumption inflation stood at 0.5%, partly due to the consumption of the coronavirus pandemic.

Some analysts expect consumer inflation to rise by 1.5% in April, as last year saw reductions in mobile phone quotas and a rise in past oil cost increases and rising electricity bills.

Many BOJ officials believe the rise in inflation is unbearable if there is no continued wage gains, indicating a sticky deflationary sentiment in Japan.

Wage growth remains slow, in part because Japanese companies no longer need to attract workers with higher wages after maintaining the habit of keeping job cuts to a minimum even in the economic crisis caused by last year’s pandemic.

BOJ Governor Kuroda Haruhiko said the central bank will keep its monetary policy tight until it reaches 2% inflation, even if its counterparts, such as the US Federal Reserve, plan to step out of the crisis recovery measures.