TOKYO – Japan’s inflation hit 3 per cent for the first time in over three decades excluding the impact of tax hikes, an acceleration that adds to the doubts over the need for continued central bank stimulus.
The rise in September’s consumer prices, excluding fresh food from a year ago, matched analysts’ forecast. The inflation reading was the highest since 1991 outside a jump in 2014 when prices were impacted by an increase in the sales tax.
Despite the extended stretch of price gains beyond its 2 per cent goal, the Bank of Japan (BOJ) is expected to stick with its ultra-loose policy at a meeting next week, cementing its isolated position among global central banks and maintaining weakening pressure on the yen.
BOJ governor Haruhiko Kuroda is likely to keep arguing that wages need to increase much more before the central bank’s goal of stable inflation has been achieved. He has repeatedly argued that the current strength of price gains is based on cost-push factors, such as energy imports, that will dissipate in the coming year.
While energy remained the biggest contributor to price rises from a year earlier, gains in processed food and household durable goods were behind the further acceleration in inflation in September. This shows that inflation is spreading beyond the power sector.
“In October, inflation may reach 3.3 per cent or 3.4 per cent as many food prices are going up, mobile phone fees are giving a lift and service prices are rising,” said Ms Mari Iwashita, chief market economist at Daiwa Securities.
“The BOJ seems to focus on downside risks overseas to conclude that it will need to keep up monetary easing. It strikes me that it has already made the decision to maintain easing,” she said.
The continued price rise has also hit Japanese households’ ability to spend, a development that has been dragging on Prime Minister Fumio Kishida’s already sinking popularity.
In October, the price of about 6,700 food items were raised, according to a Teikoku Databank survey. So far, in this fiscal year, the price tag on more than 20,000 food items were lifted, which increased the costs borne by households by at least 70,000 yen (S$664) a year, the report estimates.
Meanwhile, pay cheque growth continues to fall behind inflation, with the latest real wages data showing a 1.7 per cent decline compared with the previous year.
To counter the impact, Mr Kishida is compiling an additional economic stimulus package by the end of this month, including support for households hit by accelerating inflation. Whether or not he succeeds in addressing public discontent over inflation could be key for his longevity in the top job.
The Prime Minister also said he will launch relief measures to counter rising electricity bills in January next year or later. He said petrol subsidies will also be maintained after January, and relief on natural gas bills will be introduced as well. The strong September inflation reading may pressure Mr Kishida to go big on this month’s stimulus package.
The BOJ will reportedly raise the core consumer inflation forecast for the current year to the upper half of the 2 per cent range. Still, Mr Kuroda continues to expect that price growth will weaken to below 2 per cent in the next fiscal year and onwards.
The yen fell past a closely watched 150 per dollar level on Thursday, keeping investors on high alert for possible intervention to support the currency.
Japan’s chief currency official, Mr Masato Kanda, told reporters that excessive foreign exchange moves are becoming even more intolerable, and that resources for intervention are limitless. BLOOMBERG
