TOKYO: Bank of Japan Governor Haruhiko Kuroda’s optimism that he can meet a 2 per cent inflation target is getting a reality check at the nation’s cash registers.
Analysis of scanner data for about 350,000 products at 300 supermarkets across Japan shows costs are falling, said Tsutomu Watanabe, an economics professor at the University of Tokyo. A report on Friday showed gains in consumer prices excluding fresh food slowed for a seventh month in February to a one-year low. The cost of cereals, household durable goods and rents fell last month from a year ago, the data showed.
Japan’s bond market is also betting that Kuroda won’t be able to meet his inflation goal during the fiscal year starting April. The break-even rate, which signals bond investors’ inflation expectations, remains at half the BoJ’s target. Sovereign debt has recouped most of the losses it made last month as global central banks responded to slumping commodity prices by keeping monetary policy easy.
“It’ll take at least two to three more years for inflation expectations to be anchored stably at 2pc,” Watanabe, a former BoJ official, said in a March 20 interview. “Prices didn’t fall sufficiently during the deflation years, with wages probably putting a floor, and that created a huge gap between where prices should have been and where they actually stayed.”
Consumer prices excluding fresh food climbed 2pc in February, after gaining 2.2pc in January, Friday’s government report showed, compared with a median estimate for a 2.1pc increase in a Bloomberg survey of 32 economists. The central bank’s measure that strips out last year’s sales-tax increase showed inflation at zero.
Prices, which fell 0.4pc in April 2013 at the start of Kuroda’s term, have gained at a slower pace for almost every month since peaking at 3.4pc in May 2014.
The University of Tokyo’s measure tends to be about 0.5 percentage point lower than the CPI, Watanabe said. The school is Japan’s top university, according to QS Quacquarelli Symonds, an education-consulting company.
Japanese government bonds completed a 10-month advance in January as the slowdown in inflation continued even as Kuroda pledged to expand the nation’s monetary base at an annual pace of 80 trillion yen ($671 billion).
The Bloomberg Japan Sovereign Bond Index rose 0.5pc this month, recouping some of the 0.7pc loss in February. The 10-year bond yield, which was at 0.38pc at 11:05am in Tokyo, touched a record low of 0.195pc in January.
“It’s impossible to stably sustain 2pc inflation in Japan, 1pc may be possible but 2pc is not,” said Makoto Yamashita, strategist for Japanese interest rates at Deutsche Securities in Tokyo. “Globalisation makes it difficult for the price of goods to rise much.”
By arrangement with Washington Post-Bloomberg News Service
Published in Dawn, March 29th, 2015
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