Japan Consumer Inflation Indicator Hits Zero
In February, consumer prices, other than those of fresh foods, increased by 2% from the previous year. The central bank’s gauge now indicates that inflation is at a halt.
A sales tax hike last year is an indication of the effects this tax increase has had on the labor market, retail sales and household spending. Haruhiko Kuroda, the BOJ Governor said price drops will generally be temporary and should not be a hindrance to the Bank’s target to bring inflation levels to 2%.
Economists anticipate the Bank to introduce further monetary stimulus toward the end of the year.
Takuji Okubo, economist and founder of Tokyo-based Japan Macro Advisors said, “Households are still feeling the impact of the sales-tax increase that happened last April”. He added, “This is bad news for the economy.”
Japanese household spending fell by 2.9% since the previous year. Meanwhile, retail sales dropped 1.8% from a year earlier.
Okubo however indicated that the BOJ should go on with its monetary policy given the record high wages and declining energy prices.
On March 27, the Topix Index of shares fell by 0.2% in the early morning hours in Tokyo. Meanwhile, the yen remained relatively unchanged, going at 119.18 against the dollar.
Since June last year, oil prices have fallen by 50%. This has had the effect of counteracting the progress made by the BOJ, which began purchasing assets in April 2013 in an effort to create inflation.
The BOJ Governor said, at the time, that the goal of the asset purchase program was to bring the company’s inflation to 2% in about two years.
According to Takao Komine, a professor at Hosei University, the BOJ made too high of a commitment by setting the two-year timeframe within which it said it would achieve the targeted inflation levels.
Kuroda is facing a lot of skepticism from economists, executives in the business world and politicians. They are all raising concerns over the effects of the asset purchase program implemented by the BOJ.
Kazumasa Iwata, a former deputy governor at the BOJ said, “Monetary policy alone is not enough to attain the 2% inflation target.” Iwata went ahead to caution that the Japanese economy risked sliding back into long-term price falls.
Admittedly, the BOJ under Kuroda has made some impressive gains. For example, it has effectively lowered interest rates in Japan, weakened the yen and bolstered stocks to a record 15-year high. As a result, many large firms have witnessed high profits, allowing them to increase wages for their works. If these trends are sustained, they could support the economic recovery the BOJ is keen on achieving.
Preliminary data from the Japanese Trade Union Confederation indicate that large firms are raising wages by about 2.4% in the fiscal year that began in April. This is the highest pay rise in Japan in 17 years.
On March 23, for the first time in eight months, the government’s economic assessment indicates that the corporate sector and export industry showed impressive improvements.