Japan
inflation slows and output slips, keep BOJ under
pressure
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[December 26, 2014]
By Leika Kihara and Tetsushi Kajimoto
TOKYO (Reuters) - Japanese annual core
consumer inflation slowed for a fourth straight month in November due
largely to sliding oil prices, highlighting the challenges the central
bank faces in achieving its 2 percent inflation target.
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Factory output unexpectedly fell and real wages marked the steepest
drop in five years, underscoring the fragility of the recovery and
dealing a blow to premier Shinzo Abe's stimulus policies aimed at
pulling the economy out of stagnation.
The core consumer price index (CPI), which excludes volatile fresh
food but includes oil products, rose 2.7 percent in November from a
year earlier, matching a median market forecast, government data
showed on Friday.
Stripping out the effects of a sales tax hike in April, core
consumer inflation was 0.7 percent, slowing from 0.9 percent in
October and far below the Bank of Japan's 2 percent target.
"While the economy is recovering, falling oil prices and slowing
inflation will force the BOJ to ease policy further at some point
next year," said Hiroshi Watanabe, senior economist at SMBC Nikko
Securities.
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In a worrying sign for the central bank, inflation-linked government
bond prices <JP00190083=MUFG> slumped over the past several weeks as
investors' inflation expectations hit their lowest since Haruhiko
Kuroda became BOJ governor in March 2013.
Japan's economy slipped into recession in the wake of April's tax
hike, though analysts expect growth to rebound in the current
quarter as exports and output pick up.
Factory output slid 0.6 percent in November after two straight
months of gains, largely the effect of big-ticket items such as
computer chip-making equipment and boilers boosting October output
and confounding market expectations of a 0.8 percent rise.
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In a glimmer of hope, however, manufacturers surveyed by the
government expect output to rise 3.2 percent in December and
increase 5.7 percent in January.
Economics Minister Akira Amari told reporters the drop in November
was likely a temporary blip, given the sharp increase projected for
coming months.
Kuroda stressed last week that Japan was on track to hit the price
goal, shrugging off speculation that a recent plunge in oil prices
would weigh on consumer prices and force him to ease policy again
early next year.
But many analysts remain doubtful that the BOJ can meet its pledge
of accelerating inflation to 2 percent in the next fiscal year,
beginning in April 2015.
Reflecting the recovery, job availability hit a 22-year high and the
number of part-time workers exceeded 20 million for the first time
since relevant data became available in 1984.
But companies remained reluctant to increase wages, a bad sign for
consumption. Household spending fell 2.5 percent in the year to
November, against a market forecast for a 3.8 percent drop.
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(Editing by Eric Meijer and Richard Borsuk)
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