Japan inflation falls back to zero in January: govt

[TOKYO] Japan's inflation rate fell to zero in January, government data showed on Friday, in another blow to Prime Minister Shinzo Abe's three-year attempt to put an end to a years-long battle with falling prices.

Japan has suffered deflation - a debilitating drop in prices - off and on since the late 1990s and authorities have introduced various policies to fight it, including record low central bank interest rates.

Mr Abe came to power in late 2012 vowing to fix the problem for good through an array of policies dubbed "Abenomics" that include government spending and a massive central bank bond-buying programme.

The government's internal affairs ministry announced that Japan's growth in core consumer prices, which exclude volatile fresh food prices, was unchanged in January from a year ago after two months of tepid 0.1 per cent growth.

Falling oil prices - resource-poor Japan is a major energy importer - and a recent rise in the value of the Japanese yen are seen as further hampering efforts to achieve moderate price growth.

The latest figure underscores Mr Abe's challenge with the outlook being for further price weakness.

"In light of falling import prices and sluggish economic activity, we think that the slowdown in underlying inflation has further to run," said Marcel Thieliant, senior Japan economist at Capital Economics.

While offering pro-business policies, Mr Abe has also pushed Japan Inc to share profits with consumers via wage hikes, saying such a move would be key to boosting consumption, prices and overall growth.

Despite incentives, Japanese businesses have remained cautious to invest in their businesses and offer meaningful wage increases, citing the uncertain economic outlook.

Last month, the government said Japan's inflation rate stood at 0.5 per cent in 2015, far short of the 2.0 per cent target that the BoJ had promised to achieve by early last year.

The central bank now says the target will likely be reached next year.

The central bank and its bold governor, ex-finance ministry official Haruhiko Kuroda, surprised the market last month by introducing a negative interest rate, meaning commercial banks pay to park their cash in the central bank.

That theoretically gives them an incentive to boost lending, which in turn should encourage corporate spending and fuel the economy.

The unexpected measure has received mixed reviews, however, with analysts expecting the central bank to lower the rate further in the future.

AFP