Japanese inflation fell back to zero last month while household spending dropped again, official figures showed yesterday, as a slowdown in China threatens Japan’s already precarious economic landscape.
The disappointing figures are sure to stoke speculation that the Bank of Japan (BOJ) would be forced to unleash more stimulus later this year to counter a downturn in the world’s third largest economy, which contracted in the April-June quarter.
Still, Tokyo shares led Asian stock markets higher yesterday after a surprisingly upbeat US economic growth report buoyed investors following a prolonged rout driven by concerns over China’s economy. Tokyo stocks finished 3.03 percent, or 561.88 points, higher at 19,136.32.
The government figures showed core inflation, excluding volatile fresh food prices, was flat year-on-year, as lower fuel and other energy costs weighed on Tokyo’s battle to push up prices.
Household spending also fell 0.2 percent last month after declining 2.0 percent in June.
The two monthly drops followed a strong rise of 4.8 percent in May that offered some hope for spending after consumers snapped their wallets shut in the wake of a sales tax hike last year.
While Japan crawled out of the red in the last quarter of last year, the economy turned negative again with a 0.4 percent contraction in the second quarter due to a slowdown in China, weak consumer spending at home and slowing exports after two consecutive quarters of growth.
Analysts have pointed to China — a major trading partner with Japan — as a red flag amid worries over the health of the world’s second largest economy and a Chinese stock market bloodbath that sent global bourses into a freefall earlier this week.
Yesterday’s inflation figures are well below the BOJ’s 2.0 percent target and are likely to increase expectations that the bank is to expand its already record ￥80 trillion (US$640 billion) annual asset-buying plan in the coming months.
“The 2.0 percent inflation target no longer stands a chance of being achieved by early next year. It seems likely that the BOJ will have to launch additional easing,” SMBC Nikko Securities chief economist Junichi Makino said.
Earlier this week, BOJ Governor Haruhiko Kuroda held out the possibility of more monetary easing measures.
“At this stage, we have no concrete proposal for further accommodation, but if necessary, we will certainly make [an] adjustment,” Kuroda said.
Meanwhile, Japan’s labor market remained tight with the unemployment rate inching down 0.1 point to 3.3 percent last month, according to separate figures also released yesterday.
A closely watched labor index was at its strongest level in 23 years at 121 job offers for every 100 people looking for work.
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