Bloomberg News

Japan Consumer Prices Fall for First Time Since June: Economy

November 27, 2011

Nov. 25 (Bloomberg) -- Japan’s consumer prices fell for the first time since June, casting doubt on central bank forecasts for the world’s third-biggest economy to emerge from more than a decade of deflation.

Consumer prices excluding fresh food slid 0.1 percent in October from a year earlier, the statistics bureau said in Tokyo today. Barclays Capital and Morgan Stanley MUFG Securities Co. say declines may persist for two years even as the Bank of Japan forecasts gains of 0.1 percent for the year starting April and 0.5 percent in the following 12 months.

Commodity prices are sinking on the risk of another global slump, while a yen trading near postwar highs has cut the cost of imports. As Japan struggles to recover from the March earthquake and tsunami that left about 19,000 people dead or missing, declining prices may weigh on consumer spending and erode company profits. Government bond yields are poised for the biggest weekly gain since January.

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

Ten-year bond yields added three basis points to 1.025 percent as of 3:05 p.m. Tokyo time at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1 percent securities maturing in September 2021 lost 0.267 yen to 99.777 yen.

IMF Warning

The International Monetary Fund said this week that without more rapid economic growth, the nation faces the risk that its fiscal situation will deteriorate “precariously.” A decline in investor confidence could lead to a spike in government bond yields and make the debt level unsustainable, the IMF said.

Asian stocks fell for a third day today with Europe’s debt crisis yet to be contained. The MSCI Asia Pacific Index slid 1 percent as of 3:29 p.m. in Tokyo. Hungary lost its investment- grade rating at Moody’s Investors Service after 15 years, while German Chancellor Angela Merkel yesterday sent equity markets tumbling by rejecting joint euro-area bonds.

Japanese Finance Minister Jun Azumi said today that he’s cautiously watching currency markets after three interventions this year to weaken the yen. Standard & Poor’s said yesterday that Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the public debt burden, an indication it may be preparing to lower the nation’s sovereign grade.

The Japanese currency traded at 77.38 per dollar as of 4:15 p.m. local time compared with a post World War II record of 75.35 last month. BOJ Governor Masaaki Shirakawa said today that Europe’s debt crisis has already been affecting Japan by causing the yen to strengthen and stocks to decline.

‘Carefully’ Examine

“We must carefully watch how the development of global capital and financial markets will affect” Japan’s financial system and economy, Shirakawa said in a speech in Tokyo today.

The effect of the crisis on Japan may spread beyond capital markets should the turmoil depress demand in emerging and resource-producing countries that buy Japanese goods, he said.

Across Asia, Singapore reported that industrial production grew 24.4 percent percent from a year earlier in October as a surge in pharmaceutical manufacturing countered a slump in electronics output.

Thailand reports foreign-exchange reserves while China’s industrial profits are released Nov. 27. In Europe, reports are due on gross domestic product in Croatia, consumer confidence in France, producer prices in Spain and retail sales in Italy.

Price Cuts

Japan’s price declines in October were partly because of the fading effect of past increases in tobacco taxes and casualty-insurance fees, according to Shinke. Core prices in Tokyo, a harbinger for the nation, fell 0.5 percent in November. Beef-bowl restaurant chains Zensho Co. and Matsuya Foods Co. cut prices this month to boost sales.

“Our basic assessment is that the Japanese economy is going back to a slight deflationary condition until the middle of next year,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. The Bank of Japan may consider more monetary easing in January or February, Nishioka said.

Azumi said today that no decisions have been made relating to a fourth extra budget, after the Mainichi newspaper reported earlier that the government and the ruling party will compile one, without saying where it got the information.

In China, the room for monetary loosening may be limited by inflationary pressure that is “still very high,” Jiang Jianqing, chairman of Industrial & Commercial Bank of China Ltd., said yesterday in Cape Town.

More Easing

The People’s Bank of China this week fueled speculation that more easing may be imminent by allowing reserve ratios to fall for more than 20 rural credit cooperatives. The elevated requirements had been a one-year penalty for failing to meet lending targets.

“The crisis in Europe is far from coming to an end,” Jiang said. “We do not know where the bottom is. We see a high possibility of a global recession.”

China’s sovereign wealth fund may give “indirect” support to Europe through investments without being the nation’s main route for any aid, according to Jesse Wang, the executive vice president of China Investment Corp. He commented in an interview in Beijing yesterday.

Moody’s cut Hungary’s rating to Ba1 from Baa3 with a negative outlook after the government scrapped two debt sales and reduced the size of another eight auctions in the last three months. Prime Minister Viktor Orban’s Cabinet on Nov. 17 asked for International Monetary Fund “insurance” that doesn’t entail a loan or impose conditions.

--Editors: Paul Panckhurst, Lily Nonomiya

To contact the reporters on this story: Mayumi Otsuma in Tokyo at; Andy Sharp in Tokyo at

To contact the editor responsible for this story: Paul Panckhurst at

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