Japan consumer prices keep falling, household spending slips

A woman walks outside a shop in a shopping district in Tokyo, Japan.
A woman walks outside a shop in a shopping district in Tokyo, Japan.PHOTO: REUTERS

TOKYO (BLOOMBERG) - Japan's consumer prices fell for a seventh straight month and household spending slumped again in September, underscoring the challenges Prime Minister Shinzo Abe and Bank of Japan Governor Haruhiko Kuroda face in trying to revive the world's third-largest economy.

The downbeat inflation and spending data came despite an increasingly tight labor market. The unemployment rate slipped to 3 percent in September, equal to the lowest since 1995. The low jobless figure hasn't yet resulted in significant wage gains, a key element of efforts to reflate Japan's economy.

Consumer prices excluding fresh food, the BOJ's primary gauge of inflation, dropped 0.5 per cent in September from a year earlier.

Household spending fell 2.1 per cent from a year earlier. It has fallen in 11 of the past 12 months.

The unemployment rate fell to 3.0 per cent.

BOJ's policy board may revise its inflation outlook and projected time frame for hitting its 2 per cent target when it meets on Oct 31-Nov. 1. It has been trying for more than three years to reach that goal with extraordinary monetary easing.

Few economists think the BOJ's current projection of reaching the goal sometime in the fiscal year ending March 2018 is realistic. A stronger yen this year has pushed down import prices, and households faced with weak wage gains have restrained spending.

Yet a strong majority of economists surveyed by Bloomberg News expect the BOJ to keep its easing program unchanged next week, after it shifted the focus of its policy framework in September from expanding the monetary base to controlling interest rates.

Cheaper energy's drag on prices in Japan is now fading, but underlying inflation continues to slow, largely because of a sharp strengthening of the yen this year, Marcel Thieliant, senior Japan economist at Capital Economics, said in a note.

"There is a possibility that the jobless rate may fall below 3 per cent in the coming months," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo. "Japan is nearing full employment."

With continued stagnation in private consumption, the economy will struggle to gain traction, said Yoshiki Shinke, an economist at Dai-ichi Life Research Institute in Tokyo."There is no change to the picture that the economy has no clear driving force," Shinke said.

Overall consumer prices fell 0.5 per cent. Consumer prices excluding food and energy were unchanged.

The BOJ is scheduled to release an alternative price gauge that excludes fresh food and energy later on Friday.