Japan's key price gauge falls most since 2013 as BOJ board meets

[TOKYO] Consumer prices in Japan dropped more than expected, adding to evidence that the nation is struggling to break free of deflation as the central bank board meets to decide whether to expand monetary stimulus.

Prices excluding fresh food slumped 0.3 per cent in March from a year earlier, the most since April 2013, the statistics bureau announced. That compares with a forecast drop of 0.2 per cent in a Bloomberg survey. Excluding food and energy costs, inflation was 0.7 per cent.

The inflation figures are some of the most important data for the Bank of Japan to gauge the impact of its monetary expansion program. Policymakers have been waiting on the slew of economic indicators being released Thursday before making any decision to adjust stimulus, according to people familiar with discussions at the bank.

The BOJ's core price measure "will likely stay near zero or fall in the coming months because of downward pressure from declines in energy costs," Hiroaki Muto, chief economist at Tokai Tokyo Research Center, said before the release.

"It's very difficult to see the inflation rate reaching the 2 per cent price goal by the end of the next fiscal year."

The next fiscal year ends in March 2018, and governor Haruhiko Kuroda's five-year term ends in April of that year.

Mr Muto said it's getting harder for Mr Kuroda to keep saying that the price trend is improving, adding that pressure is building on the BOJ to ease monetary policy further.

It's also likely that food inflation has peaked, according to a research note from JPMorgan Securities economist Masamichi Adachi, who was writing before the data was released.

BLOOMBERG