Japanese consumer prices fell in January at the fastest pace since May, making it less likely the central bank will end its zero interest-rate policy.
Core prices, which exclude fresh food, fell 0.3 percent from a year earlier, led by rice costs and telephone charges, the government's statistics bureau said yesterday in Tokyo. The measure follows a 0.2 percent drop in December. Japan is headed for its seventh straight year of deflation.
On Thursday Bank of Japan Governor Toshihiko Fukui repeated a vow to keep the zero-rate policy until core prices stop falling and show stable gains. The decline is the latest indication that the world's second-largest economy is faltering after government reports this month showed Japan fell into recession last year and export growth slowed in January.
"I had anticipated deflation might be over in autumn, but what's happening now convinces me things won't improve so easily. The end of deflation is far away," Shigetaro Asano, president of Meiji Dairies Corp, Japan's second-largest dairy, said in an interview on Feb. 23.
Japan's economy shrank for three consecutive quarters through Dec. 31 as consumer spending slid and export growth faltered, government figures last week showed. Exports grew at the slowest pace in more than a year in January, according to a report this week.
October Forecast Companies including Nippon Telephone & Telegraph Corp are slashing prices for fixed-line service. Fixed-line phone costs fell 12 percent from the same month a year ago, shaving 0.2 percentage point from overall prices, the government said.
"Deflation is still pretty hard to shake off," Richard Jerram, chief economist at Macquarie Securities Ltd in Tokyo, said yesterday. "And if anything, it seems to be trending a little bit worse in recent months rather than starting to moderate."
Bank of Japan policymakers are retreating from their October forecast that core prices would rise 0.1 percent in the coming fiscal year, which begins on April 1.
Toshikatsu Fukuma, one of nine policy board members, said on Thursday that it's "uncertain" whether core prices will have stable gains next fiscal year. Fukui said on Feb. 17 that core prices will keep falling at a moderate pace.
"There is a high probability that the central bank will drop the gain in core consumer prices projected for the next fiscal year when it releases its twice-yearly economic forecast report in April," said Seiji Shiraishi, chief market economist in Tokyo at Daiwa Securities SMBC Co.
The Bank of Japan cut interest rates almost to zero in March 2001 and started pumping extra cash into the economy through purchases of government securities, a policy known as quantitative easing.
Policymakers including Miyako Suda and Atsushi Mizuno have said core prices shouldn't be the only yardstick used to determine whether deflation has ended. Excluding declines in telephone and electricity charges and rice prices, deflation has "clearly improved" since the policy was introduced, Mizuno said on Feb. 23.
Core consumer prices alone make it difficult to judge "the trend of prices, which shows the temperature of the economy," Suda, another of the bank's nine policymakers, said on Feb. 9.
Even so, it won't be easy for the central bank to drop its promise to maintain the policy until core prices rise, said Masaaki Kanno, a former central bank official and now chief economist at JP Morgan Securities Asia.
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