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By Bloomberg

HSBC Holdings Plc is leading Japanese government bond bulls in questioning central bank Governor Haruhiko Kuroda’s optimism that he can hit his inflation goal.

Several more years of Bank of Japan stimulus and government reforms are needed to spur the labor market recovery necessary to reach the 2 percent target, said Shuji Shirota, the head of the macroeconomic strategy group at HSBC Securities Japan Ltd. in Tokyo. The BOJ will expand unprecedented asset purchases in October, pushing the 10-year yield to 0.3 percent at year-end from 0.485 percent on Friday, according to HSBC, which has the most bullish forecast for 2015.

“The BOJ’s massive bond-buying stimulus will have to continue for a while as they will be far from reaching the inflation target,” said Shirota. “Monetary policy alone will not achieve a complete exit from deflation. Governor Kuroda must be fully aware of that.”

HSBC’s ultra-bullish forecast stands out in a market that is swinging toward Kuroda’s view the central bank will be able to reach its inflation target around the middle of next year, allowing a tapering of stimulus. The London-based lender says policy makers would need to produce a level of employment not even seen in Japan’s bubble era to achieve that.

‘Mission Impossible’

To generate the 3 percent wage growth that BOJ policy-board member Yutaka Harada says is required for stable 2 percent inflation, the jobless rate would need to fall to 2 percent, HSBC’s Shirota calculates. The current 3.3 percent is already close to so-called equilibrium unemployment, and a drop to 2 percent would mark an unprecedented divergence from that level, he said.

Kuroda himself said last month that Japan is approaching full employment.

Daiwa Securities Co. is dubious about how much pay increases will help push up prices in the time allotted.

“Wage growth is of course important, but achieving the BOJ’s inflation target solely through higher salaries would be tough,” said Toru Yamamoto, the chief strategist at Daiwa in Tokyo. To do it by Kuroda’s target date around the summer of next year would be “mission impossible,” Yamamoto said.

Consumer prices excluding fresh food increased 0.1 percent from a year earlier, the statistics bureau said on Friday, versus forecasts by economists for inflation to be unchanged.

‘Winning Converts’

The BOJ last October expanded the stimulus program that Kuroda introduced in April 2013 in a bid to drive inflation to 2 percent. The bank will continue with the monetary plan as long as it’s necessary, it said in a statement on June 19.

Kuroda continues to express confidence about meeting his goal, and recently he’s been winning converts.

The number of economists predicting the BOJ will add to its unprecedented easing by the end of October fell to 16 out of 35 in a Bloomberg survey June 8-15 from 21 of 36 polled in May. While a majority still forecast eventual action, 13 now say the central bank will forgo further stimulus, up from 10 last month. SMBC Nikko Securities Inc. and Totan Research Co. were among banks that dropped expectations for further easing, according to the survey.

Even as HSBC holds its year-end estimate for JGB yields steady, other bond bulls have retreated this year. After the 10- year yield dropped to a record 0.195 percent in January, the lowest prediction was for it to slide to 0.1 percent.

Credit Agricole SA is one of the revisers, pushing up its year-end yield forecast to 0.35 percent last month from 0.15 percent previously. That still makes it among the most bullish bond forecasters after HSBC.

“The BOJ can’t just scrap its 2 percent inflation target,” said Yoshiro Sato, a Tokyo-based economist at the French lender, who predicts an expansion of stimulus in January. “They have no choice but to keep extending their asset-purchase program.”