Japanese companies lower inflation outlook as effects of BOJ's easing measures remain negligible

Japanese companies expect consumer prices to rise an average 0.7 percent in a year's time retreating 0.1 percent from three months ago and marking the fourth straight time inflation outlooks have been cut, the Bank of Japan (BOJ) said on Monday.

According to the central bank's latest quarterly Tankan business sentiment survey, business sentiment remained lackluster in the second quarter, adding to speculation the BOJ will unveil more stimulus measures to take the edge of the yen's strength and underpin the economy amid global economic uncertainty following Britain's vote to leave the European Union.

Economists here believe the bank unrolling more easing measures may be on the cards, as its lofty 2 percent inflation target remains a long way short, with the companies' forecasts dropping 0.8 percent from those initially expected for the coming year in March as inflation remains largely flat.

The central bank also said Monday that companies now expect inflation to rise at an annual rate of 1.1 percent three years later, a view held since March, but in five years' time companies expect an annual increase of 1.1 percent, dropping from a previous expectation of inflation hitting an annual rate of 1.2 percent.

For large manufacturers, the BOJ said in the next year companies expect an inflation rate of 0.6 percent, unchanged from previous views, whereas small and medium-sized companies not connected to manufacturing forecast a lower inflation rate compared to previous views.

According to the latest government statistics, the core consumer price index dropped 0.4 percent in May from a year earlier, marking the biggest drop since the BOJ unrolled its massive asset purchasing program in 2013.

The slump was attributed to a drop in oil prices as well as increasing prices for food.

The bank also said Monday that the nation's monetary base at the end of June rose to a record 403.94 trillion yen (3.9 trillion U.S. dollars), marking a 24.3 percent from a year earlier, owing to the bank's aggressive quantitative easing measures.

The balance of financial institutions' current account deposits, the largest component of the central bank's monetary base, stood at 303.28 trillion yen, up 32.0 percent, the BOJ said.

The BOJ continues to aim to boost the monetary base at an annual pace of about 80 trillion yen and plunged its interest rate into negative territory in February in an attempt to bolster its stimulus program. Endit