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Japan’s Consumer Prices Keep Falling, Household Spending Slips

October 28, 2016 — 7:40 AM CST

Japan’s consumer prices fell for a seventh straight month and household spending slumped in September, underscoring the challenges Prime Minister Shinzo Abe and Bank of Japan Governor Haruhiko Kuroda face in trying to revive the world’s third-largest economy. The jobless rate was at the lowest since 1995.

Key Points

• Consumer prices excluding fresh food, the BOJ’s primary gauge of inflation, dropped 0.5 percent in September from a year earlier (forecast -0.5 percent).
• Household spending fell 2.1 percent from a year earlier (forecast -2.7 percent).
• The unemployment rate fell to 3.0 percent (forecast 3.1 percent).

Big Picture

BOJ’s policy board may revise its inflation outlook and projected time frame for hitting its 2 percent target when it meets on Oct. 31-Nov. 1. It has been trying for more than three years to reach that goal with extraordinary monetary easing.

Few economists think the BOJ’s current projection of reaching the goal sometime in the fiscal year ending March 2018 is realistic. A stronger yen this year has pushed down import prices, and households faced with weak wage gains have restrained spending.

Yet a strong majority of economists surveyed by Bloomberg News expect the BOJ to keep its easing program unchanged next week, after it shifted the focus of its policy framework in September from expanding the monetary base to controlling interest rates.

Economist Takeaways

• Core CPI will likely stay in negative territory through March, though it may rise toward zero as the effects of lower energy costs fade, Hiroaki Muto, chief economist at Tokai Tokyo Research Center in Tokyo, said before the data was released.
• The slide in the price gauge that excludes food and energy signals that consumer demand remains stagnant, Muto said.
• “Given the continued decline in consumer prices, achieving the inflation target in fiscal 2017 isn’t realistic. The BOJ may push back the time frame to fiscal 2018 at the meeting,” Muto said.
• Weak consumer confidence, poor weather in September, and dull wage growth are curbing household spending, Tokai Tokyo Research’s Muto said. “Japan’s economy was likely at a standstill in the July-September period, weighed down by weakness in private consumption,” he said.

The Details

• Overall consumer prices fell 0.5 percent (forecast -0.5 percent).
• Consumer prices excluding food and energy were unchanged (forecast +0.1 percent).
• The BOJ is scheduled to release an alternative price gauge that excludes fresh food and energy later Friday (forecast +0.3 percent).
• The job-to-applicant ratio rose to 1.38 (forecast 1.38)

source from : Bloomberg