Japan inflation registers first back-to-back rise since 2015

[TOKYO] Japan's core consumer prices rose slightly for a second month in February, while the jobless rate dropped to the lowest level since 1994.

Key Points

Consumer prices excluding fresh food climbed 0.2 per cent in February from a year earlier (forecast 0.2 per cent), registering the first back-to-back gains since late 2015.

Stripping out fresh food and energy, consumer prices rose 0.1 per cent (forecast 0.1 per cent).

Household spending declined 3.8 per cent in February (forecast -1.7 per cent).

The unemployment rate was 2.8 per cent (forecast 3 per cent) in February.

Big Picture

Many economists expect higher oil prices and a weaker yen to push core inflation to near one per cent later this year. But Bank of Japan governor Haruhiko Kuroda has warned that price momentum toward the central bank's goal of 2 per cent is not sufficient, and that he would need solid evidence of underlying inflation before raising a key long-term interest-rate target.

For now, there is little sign of sustainable inflation, with weak wage gains during spring negotiations indicating consumer spending will likely remain subdued.

Rising concerns about Donald Trump's ability to implement his pro-growth strategy have strengthened the yen over the past two weeks, underscoring uncertainty in the outlook for inflation and growth in Japan.

Economist Takeaways

"Gains in consumer prices are very slow," Hideo Kumano, a former BOJ official and chief economist at Dai-ichi Life Research Institute, said before the results were released.

"It's just oil and a weak yen that are expected to lift inflation going forward. There is no engine to generate sustainable inflation."

"Japan will continue to recover only gradually," Koya Miyamae, a senior economist at SMBC Nikko Securities Inc, said before the release.

"The global economy will help Japan's exports and production but we don't have robust domestic demand because companies and households remain cautious about spending."

Details

The job-to-applicant ratio was 1.43 (forecast 1.44).

Overall consumer prices rose 0.3 per cent from a year ago (forecast 0.2 per cent).

March consumer prices in Tokyo excluding fresh food, a leading indicator for nationwide prices, dropped 0.4 per cent (forecast -0.2 per cent).

Industrial production rose 2 per cent in February from the previous month (forecast 1.2 per cent).

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