Bloomberg News

Japan’s Consumer Prices Fall for First Time in Four Months

November 24, 2011

(Updates with economist’s comment in the fourth paragraph.)

Nov. 25 (Bloomberg) -- Japan’s consumer prices fell for the first time in four months, an indication that slowing global demand and the yen’s strength are weighing on growth and prolonging deflation.

Consumer prices excluding fresh food fell 0.1 in October, the statistics bureau said today in Tokyo, matching the median forecast of 32 economists surveyed by Bloomberg News.

The yen’s surge to postwar highs against the dollar is lowering import costs, putting pressure on prices that have also been damped by weaker demand at home. Europe’s deepening sovereign debt crisis is also threatening the outlook for growth in the world’s third-largest economy.

“It’s highly probable that consumer prices will keep falling at a moderate pace as the effect of oil prices and a the strong yen gradually surface,” Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo, said before the report. “Price growth isn’t in sight for Japan.”

Core prices fell in October partly because of the fading effect of increases in tobacco taxes and casualty-insurance fees in the same month last year, according to Shinke. Core prices in Tokyo, a harbinger for nationwide inflation, fell 0.5 percent in November.

Declines in crude oil costs amid slowing global demand, combined with the yen’s appreciation, have made Japan’s energy imports cheaper. Retail gasoline prices in Japan have tumbled 1 percent since September. The Japanese currency has advanced 6 percent against the dollar the past six months.

Beef-Bowl Discount

Japanese beef-bowl restaurant chains Zensho Co. and Matsuya Foods Co. this month cut prices to encourage consumers to loosen their purse strings. Household spending has declined every month this year, government data show.

BOJ policy makers forecast core prices will rise 0.1 percent in the year starting April 2012 before accelerating to 0.5 percent in the following 12 months. Inflation may miss those forecasts and core prices will probably keep falling for two more years, according to Kyohei Morita, chief economist at Barclays Capital in Tokyo.

Yukio Hatoyama, who was Japan’s prime minister for nine months from 2009 to 2010, said at a forum yesterday that he had “strongly” hoped the central bank would set an inflation target to stem price declines during his tenure and expressed the view to Governor Masaaki Shirakawa at the time. Shirakawa didn’t agree with the idea, Hatoyama said.

The BOJ hasn’t adopted any numerical price targets and has pledged to keep its key interest rate near zero until it determines prices have stabilized. BOJ board members say they consider prices stable in the positive range of up to 2 percent, with a median of 1 percent.

--With assistance from Minh Bui, Theresa Barraclough and Masahiro Hidaka in Tokyo. Editors: Lily Nonomiya, Paul Panckhurst

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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