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Japan inflation at new low since war on falling prices began
[TOKYO] Japan's inflation rate has dropped to its lowest level since just after Tokyo launched a high-profile offensive in 2013 to battle years of falling prices and tepid growth, data showed Friday.
The disappointing figures challenge Bank of Japan chief Haruhiko Kuroda's persistent claim that inflation is on the upswing, two years after Tokyo kicked off a war on the deflation that has been widely blamed for holding back growth and denting company expansion plans.
The data may also aggravate doubts over the government's wider bid to lift the world's number three economy out of two-decades of stagnation.
Sustained inflation is a key measure of Prime Minister Shinzo Abe's growth blueprint, dubbed Abenomics, which was set into motion following his late 2012 election victory.
The government data on Friday showed that Japan's inflation rate last month came in at 2.2 per cent, down from 2.5 per cent in December.
But stripping out the effect of a sales tax hike last year, it rose just 0.2 per cent from a year earlier, the lowest since a zero per cent rate in May 2013.
The slip makes the Bank of Japan's much-touted 2.0 per cent inflation goal - a cornerstone of Abenomics - look increasingly unrealistic.
Prices had been on the rise, largely due to Japan having to import pricey fossil fuels to plug an energy gap left by the shutdown of atomic reactors in the wake of the 2011 Fukushima accident.
But plunging oil prices have dealt another blow to the BoJ's inflation goals, and doubts are growing over the ambitious target - even among policymakers themselves.
Minutes from the central bank's January meeting showed that three of nine BoJ board members doubted the chances of reaching the price target.
Mr Kuroda has said the bank would further expand its unprecedented monetary easing campaign - launched in April 2013 - if necessary.
On Friday, Mr Kuroda insisted that an expected recovery in oil prices - they have dropped by about half since the summer - will help the BoJ get its inflation target back on track.
"As the effects of declining crude prices dissipate, the two-percent inflation target is likely to be achieved," the BoJ chief told the National Press Club.
The perennially optimistic central banker - who signed a press club guestbook with a Japanese saying about making good on one's promises - added that Japan's annual labour negotiations were likely to usher in pay hikes.
That, in turn, would lead to a boost in spending and price hikes, Kuroda said.
Still, the data on Friday were certain to boost speculation that the BoJ will be forced to expand its monetary easing campaign sooner than later to counter the downturn.
"Currently, 80 per cent of private-sector economists expect additional easing by the end of the year," SMBC Nikko Securities said in a note.
"We expect additional easing will come in late April." The inflation data were among a mixed bag of figures published Friday including a better-than-expected expansion in factory activity, but analysts warned that the uptick was likely to fizzle in the coming months.
Separately, the internal affairs ministry said household spending fell a greater-than-expected 5.1 per cent from a year ago, as the sales tax hike to 8.0 per cent from 5.0 per cent weighed on shopping nationwide.
The jobless rate last month ticked up to 3.6 per cent from 3.4 per cent in December.
Following the levy rise in April, Japan's economy fell into recession, prompting Abe to put off a second sales tax hike this year, which was aimed at taming Japan's enormous national debt.
Japan limped out of recession in the last quarter of 2014, with a weak 0.6 per cent expansion between October and December. But over the full year the preliminary data showed zero growth.
And even Friday's upbeat industrial output figure - a 4.0 per cent on-month expansion - did not warrant much optimism, said Marcel Thieliant from London-based Capital Economics.
"While industrial production surged in January, firms are predicting a renewed decline in coming months as consumer spending remains sluggish," he said.