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Japan's Prices Are Still In A Declining Trend

ByBNP Paribas
AuthorPhilippe d'Arvisenet
Published 01/28/2013, 01:38 AM
Updated 03/09/2019, 08:30 AM
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Consumer prices were almost unchanged in December compared to a year earlier. The headline CPI was only 0.1% lower than in December 2011. Excluding fresh food, the Bank of Japan’s preferred measure, prices declined by 0.2% y/y.

Prices rose fastest in the energy sector. Since the nuclear disaster at Fukushima, all but two nuclear plants have been closed and electricity companies have switched to more expensive fossil fuels. Electricity prices were 4.4% higher from a year earlier. Excluding food and energy, consumer prices fell by 0.6% from a year earlier.

As a result of the persistently mild deflation, household price expectations have also moderated exerting downward pressure on actual wage and prices developments. In November (latest available data), contract earnings (scheduled) were 0.1% lower from a year earlier. As the recession has led a fall in overtime and bonuses, total cash earnings were even 0.8% lower from a year earlier.

After the last BoJ Policy Board meeting, the government and the Bank of Japan have issued a joint statement on overcoming deflation. In an effort to raise inflation expectations, the BoJ yielded to a government request to increase the inflation objective to 2% from 1%. If wage negotiators take the new objective seriously, this could raise pay settlements.

However, there is a risk that financial markets might react more quickly which would risk to a premature rise in longterm yields, before even wages and prices start to increase. In that scenario, prices on JGBs would fall, which might lead to banks limiting their lending activities.

By Raymond VAN DER PUTTEN

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