TOKYO: Japan’s core consumer prices fell for a second straight month in April, dealing another blow to Tokyo’s faltering war on deflation, data showed on Friday.
The negative reading of minus 0.3 percent offered fresh evidence of the challenges faced by the government and the Bank of Japan (BoJ) in their bid to revitalize the world’s number three economy.
The weak data raised pressure on the BoJ to expand its vast monetary easing program possibly at its next policy meeting in June, analysts said.
“Japan’s inflation is going to remain weak,” Credit Suisse economist Takashi Shiono said, according to Bloomberg News.
“If you look at economic and price fundamentals, the BoJ has to ease further soon.”
The Internal Affairs Ministry announced early Friday morning that core consumer prices, which exclude volatile fresh food prices, dropped 0.3 percent in April, on the heels of a similar drop the previous month.
Friday’s weak data—slightly better than a Bloomberg forecast of a 0.4 percent fall—followed Japanese media reports that Prime Minister Shinzo Abe is inclined to delay a long-planned consumption tax hike over concerns it could damage the already fragile economy.
Tokyo is scheduled to raise the sales tax to 10 percent from eight percent in April 2017.
Risk of ‘crisis’
Abe has frequently said that the hike should go ahead unless there is an event on the scale of the collapse of Lehman Brothers or a major earthquake.
But in a plenary session of the G7 leaders’ summit Thursday, Abe argued that the global economy faced a risk of falling into a “crisis,” drawing comparisons with the mood in 2008 just months ahead of Lehman’s collapse, when Japan hosted the G7.
“Abe’s reference to the Lehman crisis is important in the context of whether he will postpone the scheduled consumption tax hike,” Masaaki Kanno, managing director of economic research at JPMorgan, said in a commentary.
“Abe’s statement . . . raises the odds that the scheduled hike will be postponed,” Kanno added.
On Friday morning, Japan’s top government spokesman said the government would make “an appropriate decision at an appropriate time,” skirting around reporters’ questions about Abe’s intentions.
Japan’s economy has largely defied more than three years of central bank and government remedies aimed at boosting prices as well as broader activity.
The country’s gross domestic product expanded by 0.4 percent between January and March after a contraction in the last three months of 2015, data released last week showed.
The BoJ shocked markets in April by holding fire on fresh stimulus measures, sparking questions about whether there is anything left in its policy arsenal to kickstart the economy.
Markets had expected the BoJ would tinker with the new policy or expand its massive 80 trillion yen ($730 billion) annual asset-buying plan.
The bank also cut its GDP outlook and pushed back a timeline for its ambitious 2.0 inflation target—to early 2018 rather than by September 2017.
Abe swept to power more than three years ago vowing to revive the country’s fortunes with a mix of policies centered on central bank monetary easing, targeted government spending and deregulation.
But his attempts to power inflation have been hit by falling energy prices, coupled with recent robustness in the yen driving down the cost of imports.