Consumer prices in Japan fell for a fifth straight month, underscoring the central bank’s struggle to spur inflation to its 2 percent target. Friday’s figures are the last reading on this key measure before Governor Haruhiko Kuroda and his board consider a possible policy revamp at their next meeting on Sept. 20-21.

Key Points

Consumer prices excluding fresh food, the Bank of Japan’s core gauge, dropped 0.5 percent in July from a year earlier (estimate -0.4 percent).

Consumer prices overall slipped 0.4 percent (estimate -0.4 percent).

Consumer prices excluding food and energy rose 0.3 percent (estimate +0.4 percent).

Big Picture

After more than three years of unprecedented monetary stimulus, the BOJ is no closer to its price target and investors are asking whether the central bank is running up against the limits of its effectiveness. Kuroda has ordered a comprehensive assessment of policy that may result in further monetary easing, according to economists surveyed by Bloomberg. The yen’s gains this year, weak exports and fragile consumer spending at home are adding to the BOJ’s woes.

Economist Takeaways

“Japan’s price trend is very weak,” Hiroshi Hanada, the head of economic research at Sumitomo Mitsui Trust Bank, said before the CPI data were released. “It will probably stay in decline until around the end of the year.”

Takeshi Yamaguchi, an economist at Morgan Stanley MUFG Securities, wrote in a report on Aug. 19 that the degree to which core CPI is falling is likely to ease toward the end of the year as the impact of earlier falls in energy prices washes out of the data. “However, prices excluding energy do not show clear signs of bottoming near term and we see increasing risk of downside.”

The Details

The BOJ releases an alternative index that excludes fresh food and energy later Friday.

The yen has gained about 20 percent in 2016 against the dollar, reducing inflationary pressures from imports while hurting export-dependent companies.

This month’s statistics reflect an adjustment in the base year for the price data to 2015, from 2010 previously.

The BOJ current forecast for when it expects to reach its 2 percent inflation target is sometime in fiscal year ending in March 2018. 

Source:
courtesy of BLOOMBERG

by Toru Fujioka

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