SINGAPORE (Oct 1): Japan’s central bank will need to weaken the yen by another 5% to 10% to revive the country’s exports, says Bank of Singapore.

The private bank, a unit of Oversea-Chinese Banking Corp, has a 12-month target of 115 yen against the US dollar.

The onus is on the Bank of Japan to support economic growth, given the “patchy success” and “slow-moving nature of the third arrow of structural reforms”, according to Bank of Singapore chief economist Richard Jerram, referring to Prime Minister Shinzo Abe’s pursuit of reforms to spur the economy.

Policies that weaken the exchange rate will be key in boosting growth, he said in a note today.

“At the least, the BOJ needs to extend its asset purchase programme into 2015.

“(BOJ Governor) Kuroda will also be looking for ways to innovate in order to increase policy effectiveness, so perhaps ECB-style negative interest rates will be on the agenda.”

The central bank will also need to revise its economic forecasts at its end-October meeting, as its GDP growth projections of 1% for FY2014 and 1.5% for FY2015 are “almost as unrealistic” as its inflation estimates of 1.3% and 1.9% respectively for the two years, he added.

“BOJ Governor Kuroda continues to claim that recovery is on track, but it is a fine line between promoting confidence and being in denial, and Kuroda is on the wrong side of it.”

BOJ’s latest Tankan survey of business confidence “makes it clear” that Japan’s economic recovery is stalling, said Jerram.

The reading for non-manufacturing confidence “was particularly disappointing”, dropping six points to the weakest level since mid-2013, he noted.

The result, he said, shows that the impact of Japan’s sales tax increase has lasted longer than expected.

In an attempt to rein in public debt, the country’s consumption tax was raised to 8% from 5% in April – the first increase in 17 years.

Another increase is being planned for next year.