Japan Prices Fall 2.2%, Reinforcing Deflation Concern
Japan’s consumer prices fell at a near record pace in October, reinforcing the government’s concern that deflation will hamper the economy’s recovery from its worst postwar recession.
Prices excluding fresh food slid 2.2 percent from a year earlier after dropping a 2.3 percent in September, the statistics bureau said today in Tokyo. That matched the median estimate of 26 economists surveyed by Bloomberg News.
Eight months of falling prices may intensify political pressure on the Bank of Japan to take action to combat deflation, which the government last week singled out as a threat to the world’s second-largest economy. Economic ministers said monetary policy should be used to bolster prices while central bank Governor Masaaki Shirakawa said providing more money alone won’t stimulate demand.
“The government’s declaration of deflation has made us pay much closer attention to price-related data,” said Mari Iwashita, chief market economist at Nikko Cordial Securities in Tokyo. “Discussions for further monetary steps will gain momentum and we can’t rule out the chance of more BOJ action.”
The yen’s advance to a 14-year high against the dollar may exacerbate deflation by pushing import costs lower, forcing domestic companies to cut prices to remain competitive. Japan’s currency traded at 85.52 per dollar at 8:35 a.m. in Tokyo from 85.76 before the report.
Bank of Japan
Bank of Japan policy makers last month predicted core prices will keep falling through fiscal 2011 even as the economy expands. Shirakawa has since said the central bank is committed to holding interest rates near zero to sustain the recovery. The bank’s board last week kept the benchmark overnight rate at 0.1 percent.
Falling wages and a deteriorating job outlook are discouraging spending by households and prompting companies to cut prices to attract customers and spur sales. Exports helped the world’s second-largest economy grow in the past six months after four straight quarters of contraction.
Winter bonuses among Japan’s largest companies will fall 15.9 percent in 2009, the biggest drop since the survey began in 1959, the Japan Business Federation said last month.
J. Front Retailing Co., Japan’s second-largest department store operator, and Seven & I Holdings Co., which runs the 7- Eleven chain, are among the companies selling generic-brand goods to appeal to consumers seeking cheaper merchandise.
Discount Retailing
“Even traditionally brand-conscious retailers are adding a low-price approach to their marketing arsenal,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo guaranteed approval payday loans. That could push core prices lower in coming months, he said.
The central bank says the pace of price declines will ease. Core prices will fall 0.4 percent in the year starting April 1, 2011, slower than the 0.8 percent decline for next fiscal year and 1.5 percent in the current period, it forecast on Oct. 30.
“Consumers are feeling deflation more than what government statistics suggest,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo.
Prices of more than half of non-perishable foods and daily necessities such as toiletries fell in October from three months earlier, driven by discounts, the Nikkei newspaper reported on Nov. 20, citing a survey by its subsidiary.
“Price declines are penetrating through the economy so rapidly that government data is becoming incapable of grasping the real picture of deflation,” said Nikko Cordial’s Iwashita. “Retailers are being forced into discounting competition whether they like it or not, and I’m concerned that what we will eventually see is a shrinking economy.”
Tokyo Prices
Tokyo core consumer prices slumped 1.9 percent in November from a year earlier, today’s report showed. Figures for the capital city are released a month earlier than nationwide data, making them a harbinger of price trends.
Much of the drop in consumer prices reflects last year’s peak in oil costs. Crude has dropped more than 40 percent since it reached an unprecedented $147.27 a barrel last July.
Even though the oil effect will gradually wane in coming months and price declines will probably slow further, weakening demand will weigh on prices, said economist Yoshiki Shinke.
“Downward pressure from the demand factor will persist, and the timing for core prices to turn positive is still out of sight,” said Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “We must assume deflation will linger for a long time.”
Consumer prices excluding energy and food, which economists say reflect demand in the economy more clearly, fell 1.1 percent in October from a year earlier.
Filed under: term by Forest