Japan's household inflation expectations slip to pre-QQE low

TOKYO (Reuters) - Japan's household sentiment soured and inflation expectations hit the lowest since the Bank of Japan adopted its massive stimulus program in 2013, a quarterly central bank survey showed, keeping alive expectations of more monetary stimulus.

The ratio of households who said they trusted the Bank of Japan's policy management also hit a seven-year low, with more than half of the respondents doubting whether it was independent from government interference, the survey showed.

The survey underscores the challenges the central bank faces in trying to spur public expectations that prices will rise in the future with aggressive money printing.

The ratio of households that expect prices to rise a year from now stood at 72.4 percent in June, down from 75.7 percent in March, the BOJ's quarterly survey on people's livelihood showed on Tuesday.

It was the fourth straight quarter of declines and the lowest level since December 2012, before the BOJ adopted its stimulus program - dubbed "quantitative and qualitative easing" (QQE) in 2013.

A separate index measuring households' confidence about the economy stood at minus 27.3 in June, worsening from minus 22.5 in March, to hit the lowest level since December 2014.

The index subtracts the ratio of households who feel economic conditions have worsened from those who believe they have improved. A negative reading means more households feel economic conditions have deteriorated.

Japan's economy has slumped on weak private consumption and exports. Core consumer prices in May fell 0.4 percent to mark the biggest annual drop since the BOJ deployed QQE.

Prime Minister Shinzo Abe is set to compile a fiscal stimulus package to spur growth, with lawmakers calling for one sized around 10 trillion yen ($97.03 billion).

The BOJ adopted QQE in April 2013 to accelerate inflation to its ambitious 2 percent target. It stunned markets in January by deciding to add negative interest rates to QQE in a fresh attempt to reflate the economy out of stagnation.

But the move has failed to arrest an unwelcome spike in the yen or boost business confidence, keeping alive expectations the central bank may top up stimulus again as early as this month.

The BOJ survey also showed the ratio of respondents who trust its policies slid to 40.4 percent in June from 42.4 percent six months ago, marking the lowest level since June 2009.

Over half of the respondents said they did not think the BOJ was making policy decisions on a neutral basis, the highest since 2014, the survey showed.

The BOJ is stipulated by law to decide on monetary policy without interference from the government, though the central bank has historically come under political pressure to ease.

Hand-picked by Abe, BOJ Governor Haruhiko Kuroda spearheaded a bold monetary experiment that has been touted as one of the key successes of the premier's "Abenomics" stimulus policies.

(Reporting by Leika Kihara; Editing by Chang-Ran Kim and Jacqueline Wong)