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Japan Consumer Prices Fall 0.3 Percent as BOJ Goal Stays Elusive

Japan’s consumer prices fell 0.3 percent in August from a year earlier, matching the steepest decline in 16 months as the central bank remains distant from a 1 percent inflation target.

The decline in prices excluding fresh food, reported by the statistics bureau in Tokyo today, was the same as the median estimate in a Bloomberg News survey of 26 economists. Japan’s jobless rate decreased to 4.2 percent last month from 4.3 percent in July, according to a separate report.

Entrenched deflation may increase pressure on the central bank to ease further after unexpectedly expanding its asset- purchase fund last week. The decline reported today compares with a Bank of Japan (8301) forecast for a 0.2 percent increase in prices in the fiscal year that started in April and a 0.7 percent gain in the following 12 months.

“The Bank of Japan’s forecast for CPI is unrealistic,” Hiromichi Shirakawa, chief economist in Tokyo at Credit Suisse Group AG and a former central bank official, said before the report. “The BOJ will have to significantly increase their level of money printing.”

The bank will update forecasts for prices and the economy for the 2012 and 2013 fiscal years on Oct. 30. New BOJ board member Takahide Kiuchi said the bank may cut inflation estimates and could ease policy further through purchases of riskier assets, Kyodo news agency reported Sept. 26.

“We expect the recent addition of two policy bureau members to exert downward pressure on the BOJ’s median CPI forecasts,” HSBC Securities Asia Ltd economist Izumi Devalier wrote in a Sept. 26 note. “The BOJ will need to explore further measures if it wants monetary easing to achieve its unspoken goal of weakening the yen.”

A lowered price forecast on Oct. 30 may be coupled with a 5 trillion yen ($64 billion) expansion of the asset-purchase program, Devalier said.

Deputy Governor Hirohide Yamaguchi said this week that “we will take flexible and bold steps if we judge our policy is insufficient to achieve our policy goal.”

To contact the reporter on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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