Japan prices fall for 1st time in 10 months


Japan got a batch of mostly negative economic news Friday, the most ominous being the first drop in consumer prices in nearly a year, fueling concerns that deflation remains a threat. Other reports showed a slowdown in industrial production and a jobless rate that remained unchanged at 4.0 percent. The one bright spot was a slight uptick in household spending in February.

Japan’s nationwide core consumer price index, which excludes volatile food prices, fell 0.1 percent in February from a year earlier, dipping for the first time in 10 months, the government said.

That undermined hopes that Japan has convincingly defeated the spiral of falling prices that had ravaged the economy for years. It also fueled speculation that the Bank of Japan, which raised interest rates to 0.5 percent last month, may delay its next rate hike.

“They clearly raised interest rates too early,” said Richard Jerram, chief economist at Macquarie Securities in Tokyo. “It challenges the whole basis of their policy framework.”

The government attributed the slide in the index to weakening oil prices. But the Bank of Japan has been more bullish, citing the threat of inflation as the reason for rate hikes after years of holding its key rate at virtually zero percent.

Jerram had expected another hike by the end of the year, but said Friday’s data would push that forecast back.

Also released Friday were core consumer prices for the Tokyo area, a leading indicator for nationwide consumer prices. They declined 0.1 percent in March, worse than forecast.

Finance Minister Koji Omi said prices were “somewhat weak” but that the overall economy is still on a recovery trajectory.

Meanwhile, industrial production fell 0.2 percent in February from January, indicating a potentially weak fiscal first quarter. Still, the drop was smaller than the 0.6 percent decrease predicted by economists surveyed by Dow Jones Newswires.

Japan’s unemployment rate was steady at 4.0 percent in February. Although the number of jobless dropped by 70,000 people to 2.7 million, the rate remained unchanged as more people started looking for work.

Chief Cabinet Secretary Yasuhisa Shiozaki said it appeared the country’s jobless rate had plateaued. “Things are moving in a relatively positive direction so there is no change to the fact that a moderate recovery is continuing,” he said.

On the positive side, household spending inched up 1.3 percent in February. Higher consumer spending is seen as crucial to putting Japan’s economy on more stable footing and counterbalancing its traditional reliance on exports.

“Consumption is still weak, the situation has not changed much from a month earlier, but I see a modest improvement,” Economic Minister Hiroko Ota said.

The flood of data comes ahead of Monday’s release of the Bank of Japan’s closely-watch “tankan” survey of business sentiment.

Economists surveyed by Dow Jones expect the outlook of Japan’s large-scale manufacturers to worsened slightly in March from three months earlier.