Japan Consumer Prices Fall 1.3%, 10th Monthly Decline

Japan Consumer Prices Fall 1.3%, 10th Monthly Decline

Jan. 29 (Bloomberg) -- Japan’s consumer prices fell for a 10th month in December, underscoring concern that deflation remains a threat to the economic recovery.

Prices excluding fresh food slid 1.3 percent from a year earlier after dropping 1.7 percent in November, the statistics bureau said today in Tokyo. The median estimate of 29 economists surveyed by Bloomberg was for a 1.3 percent drop.

The Bank of Japan this week affirmed its forecast for prices to keep falling until March 2012, albeit at a slower pace because of higher oil costs. Governor Masaaki Shirakawa said beating deflation is a “critical challenge” and the bank will keep interest rates low to aid the economy.

“While external factors such as crude oil are helping to slow the pace of declines, weak demand continues to exert downward pressure” on prices, said Hiroshi Watanabe, an economist at the Daiwa Institute of Research in Tokyo. “Core prices won’t turn positive until 2011 or early 2012.”

In brighter signs for the economy, separate reports today showed the unemployment rate fell to 5.1 percent in December from 5.2 percent a month earlier, while household spending increased 2.1 percent.

The yen traded at 89.78 per dollar at 8:40 a.m. in Tokyo from 89.69 before the reports were published.

The government is urging the central bank to do more to stamp out deflation, which can squeeze corporate profits and prompt households to delay purchases.

Pressure on BOJ

Finance Minister Naoto Kan this week said in parliament he wants the central bank to take deflation into account when it sets monetary policy. He made the remark while the BOJ board held a meeting in which it kept the key rate at 0.1 percent.

“The government will likely step up pressure on the central bank this quarter, as they are swamped with the task of passing next year’s budget” by March 31, said Kyohei Morita, chief economist at Barclays Capital in Tokyo.

BOJ policy makers said core prices, their main gauge of inflation, will slip 0.5 percent in the year that starts in April and 0.2 percent in the following 12 months. In October they predicted declines of 0.8 percent and 0.4 percent.

Consumer prices excluding energy and food, which economists say are a better reflection of domestic price trends because Japan imports most of its oil and edibles, fell 1.2 percent in December from a year earlier.

In Tokyo, core prices slid 2 percent in January. The figures for the capital are released a month earlier than nationwide data, making them a harbinger of price trends.

Retail Discounts

Falling wages and job losses have been discouraging spending by households and prompting companies to make discounts to attract customers.

Seiyu Ltd., a supermarket operator owned by U.S.-based Wal-Mart Stores Inc., this week started a campaign of cutting vegetable prices as much as 15 percent.

Consumers’ preference for cheaper products is eroding sales at department stores, which have fallen for 22 months. Seven & I Holdings Co., Japan’s largest retailer, this week said it will shut a Seibu outlet in Tokyo’s Ginza district on Dec. 25, its third department-store closure in two years.

“With consumers increasingly pinching pennies, prices for daily necessities such as food items are falling noticeably,” Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo, wrote in a report. “Consumers’ deflation expectations seem to have recently intensified.”

Some 35 percent of people surveyed by the central bank this month felt prices declined over the past year. The ratio was up from 20.1 percent in October. Those who expect prices to fall further in the next 12 months increased to 18.4 percent from 10.7 percent.

The government declared for the first time in three years in November that Japan has slipped back into deflation. The assessment was a “big factor” in fueling people’s expectations for lower prices, said Izuru Kato, chief market economist at Totan Research Co. in Tokyo.