Japan’s core consumer prices fell 1.2 percent last month from a year earlier, marking a full year of grinding deflation and suggesting the Bank of Japan (BOJ) 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 forced 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.
Japanese Finance Minister Naoto Kan hinted as much by saying more efforts are needed to stop price declines.
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 core-core inflation index, similar to the core index used in the US, fell 1.1 percent from a year earlier, after record falls of 1.2 percent in January and December.
“The pace of decline in prices is slowing somewhat, but prices are still falling,” Kan told reporters after the data. “More efforts will be needed in order to escape deflation.”
Kan also said he wanted to push forward debate on how to use ¥1 trillion (US$10.78 billion) in reserves in the budget for the fiscal year from April 1, which the parliament passed a day earlier.
Kan stopped short of saying the government plans to launch extra stimulus, because Japan’s outstanding debt is almost twice the size of its GDP, leaving little room for fiscal spending.
Ratings agencies have threatened Japan with a downgrade if it doesn’t show more fiscal discipline, so the government has been leaning on the BOJ to support the economy.
The BOJ loosened monetary policy earlier this month by doubling to ¥20 trillion the amount of loans it offers commercial banks for three months at 0.1 percent, which is the benchmark rate. It is likely introduce a similar six-month funding scheme in the next few months to lower term rates further, economists say.
The central bank’s policy board next meets on April 6 and 7, and then on April 30, when it reviews policy and its economic and price forecasts in a twice-yearly report.
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