BLBG: Japan’s Consumer Prices Tumbled Record 1.7% in June (Update1)
July 31 (Bloomberg) -- Japan’s consumer prices fell at a record pace in June, adding to signs that deflation may hamper a rebound from the nation’s worst postwar recession.
Prices excluding fresh food declined 1.7 percent from a year earlier after sliding 1.1 percent in May, the statistics bureau said today in Tokyo. The decrease, the sharpest since the survey began in 1971, matched the estimate of economists.
Bank of Japan board members say price declines will probably accelerate in coming months, signaling the central bank will maintain its extraordinary policy of keeping interest rates near zero. Deputy Governor Hirohide Yamaguchi said last week that it will take time before inflation returns to the zero-to-2 percent range policy makers consider to be stable.
“It’s difficult to anticipate an economic recovery robust enough to lift Japan’s consumer prices anytime soon,” said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo. “Prices may be stuck in negative territory beyond next fiscal year, and a rate increase is out of sight.”
A separate report showed Japan’s unemployment rate climbed to a six-year high of 5.4 percent in June, close to a record 5.5 percent last seen in April 2003. The ratio of jobs available to each applicant fell to a record low of 0.43, the Labor Ministry said. Household spending rose 0.2 percent.
The yen traded at 95.61 per dollar at 8:50 a.m. in Tokyo from 95.46 before the reports were published.
Delay Purchases
Consumers, whose spending accounts for more than half of the economy, may delay purchases if they expect goods to get cheaper. That would erode profits and force companies to cut wages, which have already slid for 12 months. Japan only escaped from a decade of deflation in 2005.
Bank of Japan board members predict core prices will tumble in the year ending March 2010 and the following 12 months. Even so, Deputy Governor Yamaguchi said last week that the risk of a deflationary spiral is low and there is no need for the bank to implement additional policy-easing measures now.
“Yamaguchi seems to be pre-empting possible calls on the central bank to do more should consumer prices keep falling,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo.
Since lowering the benchmark overnight rate to 0.1 percent in December, the central bank has been buying short-term corporate debt from lenders and offering them unlimited loans in exchange for approved collateral. Governor Masaaki Shirakawa and his colleagues this month extended the credit programs by three months to Dec. 31.
Exceed 2 Percent
The drop in core prices will probably accelerate through the third quarter and exceed 2 percent in reaction to last year’s record increases in oil, board member Tadao Noda said yesterday. Declines will moderate after that as the economy improves, he added.
While unemployment is increasing and prices are falling, other indicators show the recession is easing. Industrial production rose 8.3 percent last quarter, the fastest pace in 56 years, as companies replenished inventories. Manufacturers expect output to rise in July and August, a Trade Ministry survey showed yesterday.
Both wholesale prices and costs of corporate services fell at a record pace in June because of cheaper oil and weakening demand. Crude has lost about half of its value since peaking at $147.27 a barrel in July. Wheat, soybeans and corn costs have dropped since climbing to records last year.
Excluding Food, Energy
Even when excluding food and energy, consumer prices fell 0.7 percent in June, the fastest pace in more than four years, today’s report showed. Core prices in Tokyo, a harbinger of nationwide price trends, fell 1.7 percent in July from a year earlier, a record drop.
Supermarkets are cutting prices to attract cash-strapped consumers. Aeon Co., Japan’s second-largest retailer, last week started selling house-brand beer jointly developed with Suntory Holdings Ltd. at 20 percent cheaper than the equivalent products of major breweries. Larger rival Seven & I Holdings Co. also began selling house-label beer.
“With consumers increasingly pinching pennies, prices for food items, which had headlined growth in consumer goods prices last year, are falling noticeably of late,” said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo. The risk for inflation “remains overwhelmingly on the downside,” he said.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
