Japanese Inflation Stalls Even as Job Market Tightens

Updated on
  • Unemployment equals the lowest level since the mid-1990s
  • Household spending snaps losing streak, retail sales rise

Bank of America Merrill Lynch Head of Japan Economics Izumi Devalier weighs in on the Japanese economy. She speaks on 'Bloomberg Daybreak: Asia.' (Source: Bloomberg)

Japan’s key price gauge was unchanged in June, helped by rising power costs. The tight labor market may also start to help inflation, which remains far from the central bank’s 2 percent target.

Highlights of Data
  • Core consumer prices, which exclude fresh food, increased 0.4 percent in June from a year earlier (estimate +0.4 percent).
  • Excluding fresh food and energy, prices were unchanged (estimate -0.1 percent).
  • The unemployment rate fell to 2.8 percent (estimate 3 percent). 
  • Household spending rose 2.3 percent from a year ago (estimate +0.5 percent), its first gain in more than a year.

Key Takeaways

The economy is headed for a sixth-straight quarter of expansion and the labor market is the tightest in decades, but inflation is failing to accelerate toward a healthy 2 percent. The Bank of Japan last week pushed back its projected timing for reaching that goal until sometime around the fiscal year that starts in April 2019, and pledged to continue with its massive monetary stimulus. Retail sales and household spending add to the mixed signals, rising even as CPI struggles to gain momentum.

Economist Views

  • "Prices are slow to pick up and I wonder whether core CPI will reach 1 percent or not toward the end of this year,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
  • "Wages are not rising much when you think about how tight the labor market is," he said. "The BOJ has done what it can with monetary policy. It can’t be helped.”

Other Details

  • Overall, nationwide prices rose 0.4 percent in June (estimate +0.4 percent).
  • The job-to-applicant ratio increased to 1.51 (estimate 1.50), the highest since the mid 1970s.
  • Retail sales rose 2.1 percent in June from a year ago (forecast +2.4 percent).
  • Measured month-on-month, sales advanced 0.2 percent (forecast +0.4 percent).

— With assistance by Toru Fujioka, Yoshiaki Nohara, Connor Cislo, and Isaac Aquino

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