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Japan Consumer Prices Fall 1.2%, 13th Straight Drop

Customers shop for clothing
Customers shop for clothing at a sale in Tokyo. Photographer: Kimimasa Mayama/Bloomberg

Japan’s consumer prices fell for a 13th month in March, indicating the economy remains hampered by deflation even as the export-led recovery starts to spread.

Prices excluding fresh food slid 1.2 percent from a year earlier, after dropping 1.2 percent in February, the statistics bureau said today in Tokyo. The result matched the median estimate of 28 economists surveyed by Bloomberg News.

Bank of Japan policy makers will probably predict today that consumer inflation will improve to at least zero for the year to March 2012, according to 14 of 16 analysts surveyed. The estimates won’t stop the central bank from considering more policy-easing steps, said economist Hiroaki Muto.

“The BOJ probably wants to confirm solid price increases before reversing course and heading toward an exit policy,” Muto, senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo, said before the report. “There is still long way to go to stamp out deflation.”

A separate report showed the unemployment rate climbed to 5 percent in March from 4.9 percent. The ratio of jobs to applicants climbed to 0.49, meaning there are 49 jobs for every 100 candidates, the Labor Ministry said.

The yen traded at 93.99 per dollar at 8:40 a.m. in Tokyo from 94.05 before the figures were published.

Bank of Japan

Bank of Japan Governor Masaaki Shirakawa and his colleagues will decide monetary policy today, before releasing estimates for prices and gross domestic product in their twice-annual outlook at 3 p.m. in Tokyo. They will keep the benchmark interest rate at 0.1 percent, all 16 analysts said. The BOJ doubled a lending program for banks to 20 trillion yen ($213 billion) last month to spur growth and prices.

Shirakawa told lawmakers this month that he sees “positive signs” for prices. Deputy Governor Kiyohiko Nishimura said in a speech last week that “beams of light” are visible in overcoming deflation.

Japan’s export-led recovery has started to spur spending by consumers, with a report this week showing retail sales surged 4.7 percent in March from a year earlier, the biggest increase since 1997.

Takeshi Niinami, president of Lawson Inc., Japan’s second-largest convenience store operator, said this week that he’s considering raising prices in six months because consumers are beginning to care more about quality than cheaper products.

Prepared for Inflation

“We have to be prepared for just a little bit of inflation six, seven months from now,” Niinami said on Bloomberg Television on April 28.

Other retailers and restaurant chains continue to make discounts to attract shoppers whose wages declined for a 21st month in February.

Matsuya Foods Co. and Zensho Co., operators of beef-bowl restaurants, this month slashed prices, following Yoshinoya Holding Co., the country’s biggest chain. Yoshinoya said this month its loss will expand almost seven times from an initial forecast because of the discount competition.

“Consumers continue to look for cheaper goods,” said Akio Makabe, a professor of economics at Shinshu University in Matsumoto, central Japan. “Japan will to be stuck in deflation for a pretty long time.”

In January, the board forecast core prices would fall 0.5 percent in the year ending March 2011 and 0.2 percent in the following 12 months. Any upgrades to that assessment may fail to quell politicians’ calls for the central bank to provide more monetary stimulus, after Finance Minister Naoto Kan said he wants an inflation rate of as high as 2 percent.

Price Target

The ruling Democratic Party of Japan this month said it may include a price target in its platform for a July election. The opposition Liberal Democrats and two spinoff parties also plan to include ending deflation in their election pledges.

Shirakawa last week repeated his reluctance to adopt price targeting. Speaking at the Economic Club of New York, the governor said central banks shouldn’t be “too fixated on short-term price stability” because that may hamper the goal of achieving stable economic growth.

The remark “seems to be aimed at countering mounting calls for inflation targeting,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. Even so, “it may be difficult for the bank to keep dodging pressure from the government,” he said.

So-called core-core prices, which exclude energy and food and mirror the U.S.’s inflation index, fell 1.1 percent in March, the same pace as February.

In Tokyo, core prices slid 1.9 percent in April compared with 1.8 percent in March, today’s report showed. Figures for the capital are a harbinger of nationwide inflation trends because they are released a month earlier.

The government’s waiver of high school tuition fees from April 1 will drag down the core price index by about 0.5 percentage point, the central bank estimates. For the year ended March 31, the index fell 1.6 percent, the statistics bureau said.

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