Figures released by the government show the Japanese economy has been in deflation for 12 straight months. Prices fell 1.2% in February from a year earlier, threatening recovery from recession.
REUTERS - Japan’s core consumer prices fell 1.2 percent in February from a year earlier, marking a full year of grinding deflation and suggesting the Bank of Japan may need to ease monetary policy again in the next few months.
The so-called core-core consumer price index, Japan’s narrowest measure of consumer inflation that strips out both energy and volatile food costs, also logged a near-record annual fall as weak household demand force companies to cut prices.
Many analysts expect the debt-laden government, worried about an economic downturn ahead of an upper house election likely in July, to prod the central bank into easing policy further. Finance Minister Naoto Kan hinted as much by saying more efforts are needed to stop price declines.
The central bank’s most likely response is to extend the duration of a special funding operation it introduced in December, and that decision could come within the next three months, economists and analysts say.
“It’s still a long way to go before Japan pulls out of deflation. The BOJ has said it will patiently maintain very easy monetary policy. They really need to do so for a very long time for the country to escape deflation,” said Takeshi Minami, chief economist at Norinchukin Research Institute.<“Once the government comes up with a long-term plan for fiscal discipline in June, the BOJ should increase its long-term government bond purchases.”
The 1.2 percent fall in the core consumer price index, which includes oil products but excludes volatile food costs, matched a median market forecast. The pace of drop slowed slightly from January but retailers remain under pressure to cut prices while coping with a profit squeeze to woo consumers who are tightening belts amid falling wages.
The decline in core CPI is likely to widen from April when the government makes public high schools free to put more money into the hands of households and spur personal spending.
The government said on Friday it would reflect this move in its CPI calculations from April.
Analysts said they expect this to push down annualised core CPI by about 0.5 percentage point, adding that they would have to disregard such technical factors to keep track of actual price trends.
The core-core inflation index, similar to the core index used in the United States, fell 1.1 percent from a year earlier, after record falls of 1.2 percent in January and December.
Japanese government bonds shrugged off the data. Yields on benchmark 10-year JGBs rose to 1.385 percent, the highest since mid-November, after a poorly received auction of seven-year U.S. Treasury notes.
Date created : 2010-03-26