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In Japan, Prices Stabilize for the First Time in Months In Japan, Prices Stabilize for the First Time in Months
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TOKYO — Japan’s consumer prices stopped falling in May and labor demand reached its strongest level in five years, further signs the government’s expansionary policies are making some progress toward ending 15 years of deflation. TOKYO — In the latest sign that Japan may be inching out of its deflationary slump, data on Friday showed that core consumer prices were flat in May compared with the previous year, though lackluster household spending signaled that the recovery still needed time to take hold in the wider economy.
Industrial production rose more than expected in May in a sign of strength in the corporate sector, but an unexpected fall in household spending may raise some concerns about activity. It was the first time in seven months that Japan’s core consumer price index, which excludes volatile fresh food prices but includes energy, did not fall. The results were largely in line with economists’ expectations. In April, prices fell an annual 0.4 percent.
On the whole, the data signals steady economic growth, but it may take more time to achieve sustained rises in prices, and the Bank of Japan’s two-year time frame for achieving 2 percent inflation still seems unlikely. The data provide a further lift to Prime Minister Shinzo Abe’s campaign to bring an end to 15 years of deflation in Japan, during which time the country’s economy fell behind that of China’s.
Norio Miyagawa, senior economist at Mizuho Securities Research and Consulting, said that the results were mostly because of energy prices and noted that demand appeared weak. In his six months in office, Mr. Abe has focused much of his energy on tackling Japan’s falling prices — which he says are both a cause and a symptom of waning profits, wages and consumption — with a mix of aggressive monetary easing, government spending and economic reforms.
Mr. Miyagawa said it was possible for the Bank of Japan “to ease again later this year, when it becomes clear that there’s not enough progress in reaching its price target.” But Mr. Abe’s bid has reached a critical juncture in recent weeks, as initial investor enthusiasm over his economic programs gave way to a colder-eyed look at the difficulties of turning around an economy so entrenched in deflationary expectations.
Core consumer prices, which exclude fresh food but include energy, were unchanged in May from a year earlier, matching the median estimate from a Reuters poll. Japanese consumers have been the most wary of Mr. Abe’s recovery pitch. Separate government data released Friday showed that household spending fell 1.6 percent in May from a year earlier, dashing economists’ expectations of a 1.3 percent rise. A shortfall in consumer demand has been the biggest contributor to Japan’s deflationary woes.
It was the first time in seven months that prices had not fallen. Prices fell an annual 0.4 percent in April. And Japan’s so-called core-core consumer price index, which excludes both food and energy, fell 0.4 percent in the year to May, after a 0.6 percent annual decline in April, underscoring continued weak consumer demand.
Japan’s core Consumer Price Index, which excludes food and energy, fell 0.4 percent in the year to May, after a 0.6 percent annual decline in April, the government data showed. Still, early data for consumer prices in Tokyo, seen as a precursor of nationwide trends, rose 0.2 percent in June, signaling that a turnaround could be near.
The central bank unleashed the intense burst of stimulus on April 4, promising to inject $1.4 trillion into the economy by buying government debt and riskier assets to meet its pledge of achieving 2 percent inflation in roughly two years. Tokyo’s benchmark Nikkei index reacted positively to the data over all, jumping 3.3 percent in morning trade to 13,648.81. Japanese stocks surged 80 percent by mid-May in strong hopes for Mr. Abe’s economic turn, but have since fallen by as much as 20 percent before starting to edge back up.
Many private sector economists say the two-year target is overly ambitious. Even one member of the bank’s policy board has publicly called on the bank to loosen this time frame.