Japan is still struggling to build inflationary pressures

Photo by Junko Kimura/Getty Images

Japanese inflationary pressures moderated in February. However, with forward-looking indicators looking weak, there’s a risk that prices might start to weaken again in the months ahead.

According to figures released by the Japanese government on Friday, headline consumer price inflation rose by 0.3% in the year to February, below the 0.4% pace of January.

While headline inflation moderated, core inflation — which excludes fresh food prices — rose by 0.2% over the same period, up from the 0.1% pace recorded in the year to January.

It was the fastest year-on-year increase registered since April 2015, and in line with market expectations.

The core inflation figure is the favoured measure of inflationary pressures used by the Bank of Japan (BOJ), so the uplift would be welcomed even if the annual pace remains well below the bank’s 2% target.

So called core-core inflation, excluding both fresh food and energy prices and more akin to core inflation measures targeted by other major central banks, rose by just 0.1% in year to February, down from 0.2% in January.

And, perhaps adding to downside risks for core inflation in the months ahead, the forward-looking indicators were also weak.

Core inflation in Tokyo, released one month in advance of the national figure, fell by 0.4% in the year to February, below the 0.2% decline expected and 0.3% drop registered previously.

That suggests that the uptrend in the national core inflation figure may moderate, or reverse, when the March figures are released in late April.

Earlier this month, the BOJ stated that it will continue with its monetary easing program — known as quantitative and qualitative easing program (QQE) with yield curve control — as long as it is necessary to achieve its inflation target of 2% in a stable manner.

On current trend, that appears a long way off yet.

While the inflation data was slightly disappointing, other data released on Friday offered a more optimistic assessment on the Japanese economy at present.

In February, the national unemployment rate tumbled to 2.8% from 3.0% in January, leaving it at the lowest level since June 1994.

The jobs-to-applicants ratio — simply measuring the number of jobs available to job seekers — held steady at 1.43, leaving it at highs not seen since the early 1990s.

Put another way, there are currently 143 jobs available to every 100 job seekers right now.

The news on household spending was also strong, lifting by 2.5% in February. That was higher than the 0.5% growth of January, and above the 0.4% increase expected.

However, from a year earlier, spending still contracted by 3.8%, weaker than the 1.7% fall expected.

Separate data on industrial output also exceeded forecasts, rising by 2% in February after 0.4% in January. It was stronger than the 1.2% increase expected.

Looking further ahead, manufacturers said that they expect output to fall 2% in March before accelerating by 8.3% in April.

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