Japan’s Producer Prices Decline 0.1% as Yen Climbs

Japan’s producer prices fell for the first time since July as the yen’s gain makes imports cheaper, adding to deflationary pressure on the economy.

The amount companies pay for energy and unfinished goods fell 0.1 percent in September from a year earlier, compared with the median forecast of 27 economists surveyed by Bloomberg News to be flat.

BOJ policy makers last week pointed to the yen’s strength as a reason to forecast weakening producer prices, when it downgraded its economic assessment in its monthly report. It also cut the target for the benchmark interest rate for the first time since 2008 and created a 5 trillion-yen ($61 billion) fund to buy assets and expand its balance sheet.

“It’s too early to assume the BOJ’s measures can work effectively to beat deflation and stop the yen’s appreciation,” Eiji Dohke, chief Japanese government bond strategist at Citi Group Global Markets Japan Inc. in Tokyo, said before the report. “The BOJ will probably implement additional action as early as November.”

From a month earlier, prices were unchanged, today’s report showed.

The central bank’s overseas commodity index, a gauge of costs of materials including oil, steel, copper and wheat, rose 23.6 percent in September from a year earlier, compared with an 8.7 percent increase in August. The index had been rising more than 50 percent in the first four months of 2010.

Cut Prices

A stronger yen is prompting Japanese retailers to cut prices of food, clothing and furniture to spur consumption as households keep their purse strings tight. The confidence index of Japanese household slid for a third month in September, a government report showed this week, adding to signs of a slowdown in domestic demand.

Retailers including supermarket operator Daiei Inc. and Ryohin Keikaku Co., which operates Mujirushi Ryohin stores, are lowering prices.

BOJ policy makers predicted in July producer prices will probably rise 1.2 percent in the year ending March 31 and increase 0.8 percent in the following year. They will update forecasts when they will release a semi-annual economic on Oct. 28.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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