Japan consumer prices fall for first time since since launch of BOJ stimulus in 2013

A shopper looks at items outside a discount store at a shopping district in Tokyo, Japan.
A shopper looks at items outside a discount store at a shopping district in Tokyo, Japan. PHOTO: REUTERS

TOKYO ( REUTERS) - Japan's core consumer prices marked the first annual drop since the central bank deployed its massive stimulus programme more than two years ago, fuelling speculation of a fresh round of stimulus measures.

The core consumer price index, which includes oil products but excludes volatile fresh food costs, fell 0.1 per cent in August from a year earlier, data from the Internal Affairs ministry showed on Friday (Sept 25). That matched a median market forecast and followed flat growth in July.

It was the first decline since April 2013, when BOJ Governor Haruhiko Kuroda launched his massive asset-buying programme, a sign his sweeping campaign has yet to reflate the economy enough to accelerate inflation toward his price target.

The data adds to a recent run of poor indicators that showed the world's third-largest economy struggling to emerge from a second-quarter contraction as China's slowdown and slow wage growth hurt exports and household spending.

"Further monetary easing is necessary sooner or later," said Junichi Makino, chief economist at SMBC Nikko Securities. "If so, there's not much point delaying it," he said, adding that he expects the BOJ to ease either next month or in April next year.

Core consumer prices in Tokyo, available a month before the nationwide data, fell 0.2 per cent in September from a year earlier, data showed, matching a median market forecast.

Japan's economy shrank in April-June and some analysts warn of the chance of another contraction in the current quarter as fears over China's slowdown jolt markets.

Many analysts expect prices to slide in coming months due largely to a renewed drop in oil costs. Mr Kuroda has said the BOJ will look through the effect of the oil price rout and won't act as long as a steady economic recovery keeps prices in an uptrend.

With the recovery itself under threat, however, the BOJ is under pressure to expand monetary stimulus as early as next month, when it is set to cut its long-term economic and growth forecasts.

A majority of economists surveyed by Reuters this month expect the BOJ's next policy move to be an expansion of stimulus. Twelve of 18 economists said further easing would likely come some time next year, while five said the central bank might ease at its Oct 30 meeting.