Japan's Consumer Prices Rise for First Time in Four Months

Japan’s consumer prices rose slightly in November after declining for three months, with a renewed decline in oil prices continuing to hold down inflation, preventing the Bank of Japan from making much progress toward its 2 percent inflation target.

Consumer prices excluding fresh food rose 0.1 percent in November from a year earlier, according to a statistics bureau report Friday. Economists forecast prices to be flat, according to a Bloomberg survey.

The BOJ tweaked its monetary stimulus program last week in a step that UBS Group AG says is aimed at preparing for a prolonged battle to end deflation in Japan. While Governor Haruhiko Kuroda has indicated that he won’t address price declines caused only by low energy prices, if deflation persists it could delay changing the mindset of companies and consumers about spending and prompt the bank to add to stimulus again.

Prime Minister Shinzo Abe has been urging companies to deploy their record cash into investment in factories and higher wages as tepid income growth has been a factor in holding down consumer spending. The BOJ also announced a new program to buy exchange traded funds made up of stocks from companies “proactively investing” in physical or human capital.

“Inflation will remain subdued given what’s happening with oil,” Daiju Aoki, an economist at the UBS, said before the report was released. “Market speculation will continue to be for further easing.”

Kuroda said at a press conference that the inflation trend is improving after the BOJ kept the monetary base target unchanged last week. The BOJ expects consumer prices to reach 2 percent around six months through March 2017 while it notes the timing depends on oil price moves.

In a Bloomberg survey conducted Monday, 10 of 25 analysts expected further easing by July and one saw it in January 2017 or later. Fourteen predicted no further stimulus for the foreseeable future.

Oil Price Decline

Koya Miyamae, an economist at SMBC Nikko Securities Inc., said the BOJ may have to lower its forecasts for price growth again next month because of the renewed slide in oil prices. Dubai crude oil dropped to $31.87 a barrel this week, the lowest level since 2004. The bank had forecast in October that it would rise from around $50.

The BOJ extended the average maturity of bond purchases and raised the maximum amount of each purchase of Japan Real Estate Investment Trusts, expanding room to continue asset purchases last week.

In an attempt to be more transparent about the inflation trend, the BOJ recently began publishing consumer prices excluding fresh food and energy. The gauge rose 1.2 percent for a third consecutive month in November, the highest level since 2011, according to the central bank on Friday.

Household spending dropped 2.9 percent while the jobless rate stood at 3.3 percent in November, according to separate reports by the statistics bureau Friday.

The BOJ considers inflation expectations and the output gap as two key channels for propelling inflation. The bank has said inflation expectations are rising from a long-term view and the output gap improved last quarter as the economy continued to recover moderately.

Although companies’ expectations for inflation are slowing, they are still predicting that prices will rise somewhat, and are responding with price increases. Suntory Holdings Ltd. announced Monday it will raise the price of 33 whiskey products for the first time in 32 years. The inflation outlook among companies slowed this quarter, with expectations for prices in one, three and five years lower than they were three months ago, according to a central bank report on Dec. 15.

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