Japan's consumer prices rise as Kuroda pumps record stimulus

[TOKYO] Japanese consumer prices unexpectedly rose in May, as central bank chief Haruhiko Kuroda tries to generate inflation with unprecedented monetary stimulus.

Consumer prices excluding fresh food rose 0.1 per cent from a year earlier, the statistics bureau said on Friday. The median forecast by economists surveyed by Bloomberg was for prices to be unchanged.

Growth which is forecast to slow this quarter risks damping inflation that Kuroda predicts will pick up later in the year as the effects of the plunge in oil prices fade. Only 2 of 32 economists see the BOJ reaching its 2 per cent target by September next year, with a majority forecasting an eventual increase in stimulus.

"The BOJ sees no need to move now," Yasuhiro Takahashi, an economist at Nomura Holdings Inc., said before the report. "Inflation is weak due to falling oil prices. The BOJ is looking at the overall trend, not temporary factors."

The central bank refrained from boosting its unprecedented stimulus last week, with Kuroda sticking to his view that the underlying trend in consumer prices is upward. Expectations that inflation will pick up have been maintained, even with slower readings in the data, some members of the BOJ's board said at a May policy meeting.

The economy's accelerated expansion in the first quarter was driven by increased corporate investment, and a buildup in inventories that analysts say companies will need to work off, denting industrial production and growth.

Oil prices have dropped by more than 40 per cent from last year's peak in June. Cheaper energy could help drive declines in consumer prices of as much as 0.2 per cent before inflation picks up again, Takahashi said.

The weak yen - a source of higher import costs - could support inflationary pressures. The Japanese currency was at 123.57 against the dollar at 8:34 am, after reaching a 13-year low on June 5.

Higher costs of ingredients is leading Kagome Co to boost prices of its sauces in August, the first increase in a quarter century. Kokuyo Co cited the weak yen as a reason for its decision to raise the price of its stationery from July.

A Cabinet Office survey released this month showed that 87 per cent of households expect the cost of living to increase in the year ahead.

"We have to carefully watch to see if households welcome an increase in prices," said Atsushi Takeda, an economist at Itochu Corp. "They may still be in saving mode without much wage growth."

BLOOMBERG