Japan’s core consumer prices unexpectedly rose in July, gains economists say won’t end the nation’s fight against deflation.
Prices excluding fresh food rose 0.1 percent in July from a year earlier, the statistics bureau said in Tokyo today. The median estimate of 27 economists surveyed by Bloomberg News was for a 0.1 percent drop.
Persistent deflation exacerbates Japan’s problems in coping with a yen close to a record high against the dollar at a time when the economy is just recovering from a March earthquake. Prime Minister Naoto Kan’s successor will be challenged with working with the Bank of Japan to fight price declines that have kept the economy stuck near its 1990 size.
“The sustainability of Japan’s recovery is now in question with the strong yen and a weakening global economy,” Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo, said before the report. “I don’t see any chance deflation will end in the foreseeable future. This will remain a big challenge for the government and the Bank of Japan.”
Japan’s consumer prices were revised on Aug. 12 as the bureau reshuffled items in the price basket, part of a change that takes places every five years. The revamping of the index lowered prices by about 0.6 percentage point on average.
Central bank Governor Masaaki Shirakawa said Aug. 4 the nation will take a while to achieve price stability as he anticipated new figures would show price declines have been worse than initially anticipated. The central bank kept its estimate for core consumer price inflation at 0.7 percent for the year ending March 31 in July.
Yen Relief Measures
Finance Minister Yoshihiko Noda this week unveiled measures to combat the yen which reached a record high of 75.95 per dollar last week. Japan set up a $100 billion facility to promote companies purchasing overseas businesses and secure energy resources.
The strong yen erodes overseas profits when repatriated, weakening the competitiveness of exporters, one of the nation’s main engines of growth.
“I have kept monitoring markets with a sense of tension since last weekend, but the yen continues to have one-sided moves,” Noda, who is also a contender to replace Kan, told reporters this week. “I thought we had to swiftly address this by employing measures.”
Candidates of the ruling Democratic Party of Japan are scheduled to compete in a party election on Aug. 29 to be the sixth premier in five years. The race comes less than a week after Moody’s Investors Service cut Japan’s credit rating, citing political instability.
Economists including Dai-Ichi’s Shinke say prices may rise in coming months because of rising commodity costs. Japan will raise prices of imported wheat to flour millers by an average 2 percent in October, the government said this week. Wheat futures in Chicago have advanced 11 percent in the past year as of Aug. 24, bolstering a rally in global food prices to an all- time high in February.