Japan's inflation slips, joblessness edges higher in September as central bank mulls stimulus

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TOKYO — Japan's economic recovery remained in the doldrums in September, as household spending fell, inflation edged lower and unemployment ticked up.

The data were released Friday as the Bank of Japan held a monetary policy meeting. As the U.S. winds down its own "quantitative easing," Japan's central bank faces pressure to increase stimulus to support growth as Prime Minister Shinzo Abe weighs approval of a sales tax hike next year.

Core inflation, excluding volatile food prices, was at 3.0 percent, down from 3.1 percent in August. Unemployment rose to 3.6 percent from 3.5 percent.

The government reported that household spending fell 5.6 percent from a year earlier in September, though it rose 1.5 percent from August. Household incomes, meanwhile, fell by 6 percent from a year earlier in real terms, excluding inflation.

Abe and the central bank have sought to spur inflation as a way of encouraging consumers and businesses to spend more and thus support faster growth.

But a sales tax hike in April, from 5 percent to 8 percent, slowed the recovery that began in late 2012.

When the increased costs from the tax hike are figured in, inflation remains below the target rate of 2 percent. For Japan, which relies heavily on imports of crude oil and natural gas, a moderation in oil prices has helped reduce some price pressure. But the data released Friday showed inflation, excluding both food and energy prices, has remained flat at 2.3 percent since June.

Abe is due to decide before year-end on whether to raise the sales tax another 2 percentage points to 10 percent next year. The tax increases are needed to help counter Japan's huge public debt, but the hike is opposed by a majority of the public.

BOJ Gov. Haruhiko Kuroda has insisted that the central bank's massive asset purchases are having their intended effect. But he may be getting closer to conceding that the policy has not generated as much inflation as intended.

"So now the question is a pivotal one. Will the central bank then necessarily step on the pedal to hit the elusive '2' or will it replace the 2 percent inflation target with less lofty goals?" Mizuho Bank said in a research note.

"It takes two to tango," it said, forecasting that the central bank will likely hold off on further stimulus, while watching to see if Abe pushes ahead with the tax hike.

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