Japan still can't shake deflation


There’s still no signs of inflation stirring in Japan, despite the best efforts of policymakers.

But outside of price developments, the news elsewhere was OK.

According to Japanese government, consumer price inflation (CPI) fell by 0.5% in the year to September, unchanged from the decline reported in August and in line with expectations.

Core CPI, excluding fresh food prices, also fell by 0.5% over the year, again unchanged from August and in line with the median forecasts of economists.

While deflationary pressures didn’t intensify any further, it was still the equal-largest annual drop recorded since March 2011.

So-called core-core inflation, a reading that excluded fresh food and energy prices and akin to core inflation figures released in other advanced economies, came in flat over the same period, down on the 0.2% increase seen in the year to August.

It had been as high as 0.8% in January this year.

However, helping to temper concerns, the core CPI figure for Tokyo — released one month in advance of the national figure — fell by 0.4% in the year to October, an improvement on the 0.5% drop expected.

Perhaps Japan, like other nations, has seen the bottom for deflationary pressures, at least for the moment.

Outside of the inflation reads, the news elsewhere was OK without being spectacular.

Household spending jumped by 2.8% in September, partially recovering from the 3.7% decline seen in August, helping to trim the annual decline to 2.1%.

It fell 4.6% in the year to August and was an improvement on the 3.0% drop expected.

Unemployment also fell, dropping to 3.0% in September from 3.1% in August. Economists had been expecting an unchanged reading.

Suggesting that labour market conditions continue to tighten, the jobs-to-applicants ratio — simply the number of jobs available divided by actual job seekers — rose to 1.38, higher than the 1.37 level of August.

It now sits at the highest level seen since August 1991.

The data set arrives a week before the Bank of Japan next meets to discuss monetary policy, with markets adopting the view that the bank is unlikely to add to stimulus measures despite the continued underperformance of the Japanese economy.

In light of the continued weakness in inflationary pressures — currently well away from the medium-term target of 2% — some analysts believe the bank will downgrade its inflation forecasts next week, further pushing out the time horizon for achieving this goal.

At present, the BOJ sees inflation returning to target by March 2018 at the latest.

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