TOKYO–Japanese inflation eased in June due to the slowing impact on prices from a sales tax hike and surging imports, official data showed Friday, figures that are likely to stoke renewed questions about Tokyo’s war on deflation. The Bank of Japan (BOJ) has set an ambitious 2.0 percent inflation target for next year as part of a wider government push to conquer years of debilitating deflation.
The plan has shown signs of working as the inflation rate hit a three-decade high in May, but the price rises were still largely driven by Tokyo hiking sales taxes on April 1 and a weak yen driving up import costs. The latest figures “suggest that the impact of the sales tax hike has started to fade,” Capital Economics said in a note after the data was released. “We expect core inflation excluding tax to fall below 1.0 percent in coming months,” it added. Japan’s core consumer prices, stripping out volatile fresh food prices, rose 3.3 percent year-on-year in June, slower than the 3.4 percent rise in May. Excluding the impact of the tax increase to 8.0 percent from 5.0 percent, the rise in core inflation came in at 1.3 percent, Dow Jones Newswires said, quoting a formula used by the Bank of Japan. That was slower than a 1.4 percent increase in May and 1.5 percent rise in April. June’s inflation rise was partially due to a nearly 11 percent jump in gasoline prices and higher electricity bills that reflected rising oil costs. Japan has seen its energy bill jump as it turned to expensive fossil fuel imports after shutting down its nuclear reactors in the wake of the Fukushima atomic crisis.
Nuclear power once supplied more than one quarter of its power. Despite signs that its inflation target may not be achievable by next year, the BOJ has so far played down the prospect of further monetary easing, but the bank could face renewed pressure to act if the inflation rate continues heading south. At its most recent policy meeting this month the central bank said the economy was still holding up despite the levy hike and a closely watched report that showed business confidence in April-June suffered its first deterioration in six quarters. The tax hike was seen as crucial to shrinking Japan’s mammoth national debt, one of the heaviest burdens among wealthy nations.
However, the rise dented consumer spending and slowed business activity, with the government and BOJ both cutting back their economic growth forecasts for the fiscal year through March. The data Friday came a day after separate figures showed Japan’s trade deficit ballooned to a record in the first half of the year as exports fell further in June, an imbalance partly driven by a weak yen and post-Fukushima energy imports.