People select kitchenware at a shopping mall in Tokyo. Japanese inflation was tepid last month while household spending suffered a surprise drop, official data showed on Friday, fanning speculation the central bank would unleash a fresh round of stimulus.

AFP
Tokyo


Japanese inflation was tepid in June while household spending suffered a surprise drop, official data showed on Friday, fanning speculation the central bank would unleash a fresh round of stimulus.
Core inflation, excluding volatile fresh food prices, edged up 0.1% from a year ago, the government said, while excluding food and energy, prices rose 0.6% – both well short of the Bank of Japan’s 2% target.
Lower fuel prices and other energy costs helped curb inflation, the internal affairs ministry data said.
Separately, the ministry said household spending fell 2% in June against market expectations for another rise after a 4.8% increase in May.
The May figure was the first monthly rise since Japan hiked sales taxes in April last year to help pay down its huge national debt.
The sales levy hike, Japan’s first in 17 years, slammed the brakes on consumer spending and briefly pushed the economy into recession.
Growth returned in the last three months of 2014 and the economy expanded 1% in the first quarter of this year.
On Thursday, more upbeat figures showed Japan’s factory output turned positive in June, reversing a decline from the previous month.
But economists have warned that the April-June GDP figures could still be weak, and there is growing speculation that the Bank of Japan will almost certainly be forced to expand its already huge monetary easing scheme to jack up prices and stoke growth.
“The BoJ is pinning its hopes on a strong rebound in demand, which would create capacity shortages and stoke price pressures,” said Marcel Thieliant from Capital Economics.
“Unfortunately, today’s data on consumer spending underline that these hopes are unlikely to materialise,” he said in a commentary.
Since taking office in late 2012, Prime Minister Shinzo Abe launched a pro-spending policy blitz that also calls for economic reforms and massive central bank stimulus.
The easing programme helped send the yen tumbling, which is positive for Japanese exports but pushes up import costs, translating in higher retail prices.
But Tokyo’s war on deflation has yet to be won and there is a “strong chance” prices will turn negative from July, warned SMBC Nikko Securities.
Yasunari Ueno, chief market economist at Mizuho Securities, added: “I can’t see when the BoJ will be able reach the 2% inflation target at all.
“It appears to be a matter of time before the BoJ adds monetary stimulus,” he told Bloomberg News.
The labour market remained tight, however, with the unemployment rate edging up slight to 3.4% from an 18-year low of 3.3% in May.
A separate survey from the labour ministry showed the ratio of job offers to job seekers remained at a 23-year high of 1.19, meaning there were 119 offers for every 100 applicants.


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