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Japanese Inflation Back at Zero

Japanese Inflation Back at Zero
Mar 27, 2015

Japanese inflation is back down to zero for the first time in almost two years. Slow wage growth combined with the tax hike from last year have hurt consumer spending. The Japanese government announced last year that they would increase sales tax from 5 to 8 per cent with an additional 2 per cent increase happening later this year. Consumer prices excluding fresh food rose 2 per cent last month. Wages continued a 13-month slide, falling 1.9 per cent. These factors contributed to a household spending decrease of 2.9 per cent from the previous year while retail sales fell 1.8 per cent in the same period. “Households are still suffering from that sales-tax hike from last April,” said Takuji Okubo, founder of Japan Macro Advisers. “This is again bad news for the Japanese economy.”

 Mr. Okubo cited some positive factors for the Japanese economy as well. He believes that falling energy prices may help to improve economic conditions and that the Bank of Japan should “sit tight” on monetary policy. Analysts surveyed by Bloomberg are forecasting an additional monetary stimulus by October of this year. Bank of Japan Governor Haruhiko Kuroda said that the price drop will only be temporary and it won’t stop the central bank from reaching its 2 per cent inflation target. However, Hosei University professor Takao Komine has said that the BOJ over-committed itself by setting a premature two-year timeframe on its inflationary targets. Although the recovery from the recession has been shaky, the Japanese government has revised its economic outlook for the economy for the first time in eight months. Improvements in the corporate sector and potential wage increases have been cited as positive factors for the Japanese economy. 

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