Japan’s Inflation Is Still Near Zero Ahead of BOJ Decision Today

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Japan’s consumer prices stayed barely above zero, industrial production fell, household spending dropped, and the jobless rate held steady in December, adding pressure on the Bank of Japan to consider further expanding its already record asset-buying program.

Consumer prices excluding fresh food rose 0.1 percent in December from a year earlier, according to a statistics bureau report Friday. That matched the median estimate of economists surveyed by Bloomberg. Household spending slumped 4.4 percent from a year earlier, while the jobless rate stood at 3.3 percent, data from the bureau showed.

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A further drop in oil prices, a reversal in the yen’s declines and turmoil in global financial markets have put pressure on the BOJ to do more to spur price gains and boost economic growth. Some BOJ officials view it a close call as to whether the policy board will add to stimulus at a two-day meeting ending around midday in Tokyo, according to people familiar with discussions at the central bank.

“Given declining oil prices and a reversal of the weak yen, the inflation rate will probably stay near zero and inflation expectations will be unlikely to rise anytime soon,” said Hiroaki Muto, chief economist at Tokai Tokyo Research Center. “Sooner or later, the BOJ has no choice but to take on additional easing.”

Currency Impact

The yen has strengthened against the dollar in the past month, while most other major currencies have weakened, eroding some of the advantage Japanese exporters had from the foreign exchange market. A stronger yen also pushes down prices.

Six of 42 economists surveyed by Bloomberg expect the central bank to boost stimulus at today’s meeting. Twenty-three see a move likely between March and July and 13 say there is no prospect of further easing in the foreseeable future.

At its last meeting in December, the central bank left its main monetary stimulus target unchanged while outlining operational changes for purchases of government bonds, exchange-traded funds and real estate investment trusts. Its policy of expanding the monetary base at an annual pace of 80 trillion yen, mostly through the purchase of government bonds, has been unchanged since October 2014.

While Muto said the BOJ may expand stimulus at this meeting, Junichi Makino, chief economist at SMBC Nikko Securities Inc., said the BOJ may hold off expanding stimulus this time and expand it further as early as the March meeting.

Industrial production fell 1.4 percent in December from the previous month, according to a report released by the trade ministry Friday. That compared with forecasts for a drop of 0.3 percent.

“Japanese manufacturers will probably hold off spending as the global financial markets have been roiled and Japanese stocks slumped,” Tokai Tokyo Research’s Muto said. “The prospects for exports and production are looking cloudy, meaning the economic momentum will probably weaken in the January-March period.”

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