(Bloomberg) -- Japan’s key inflation gauge went negative again last month, underscoring the challenge the Bank of Japan and new Prime Minister Yoshihide Suga face in trying to restore price momentum amid the pandemic.
Consumer prices excluding fresh food fell 0.4% in August from a year earlier, going negative again after two months of staying unchanged, the ministry of internal affairs reported Friday. The result matched the forecast by economists.
Key Insights
- The government’s “Go-To-Travel” discount campaign has added downward pressure on prices that were already weak amid the pandemic and soft energy markets. Analysts see inflation falling more next quarter as the positive base-effect from last October’s two-percentage-point sales tax hike drops out of the index.
- Japan’s virus cases have subsided in recent weeks and alert levels have been reduced in Tokyo. The nation’s capital is expected to be added to the national travel campaign next month, a move that’s likely to boost spending, but further weigh on inflation.
- Suga became Japan’s prime minister this week, vowing to continue Abenomics and bring more significant reforms. His calls for lower cell phone fees for consumers has been seen as a sign that he’s less concerned about inflation than his predecessor Shinzo Abe was.
- The Bank of Japan kept its policy unchanged this week, with Governor Haruhiko Kuroda continuing to defend the central bank’s 2% price target.
What Bloomberg’s Economist Says
“The immediate policy implications of a negative reading on core inflation would likely to be minimal, given the Bank of Japan’s current focus on providing funding support to help Japan Inc. cope during the pandemic.”
--Asia Economist Team
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- Excluding the impact of the Go-To-Travel campaign, core inflation was flat compared with the previous year, the ministry said.
- Inflation excluding energy and fresh food fell 0.1%, matching the analysts’ projection.
- Overall prices climbed 0.2%, also the same as forecast.
(Adds details on prices.)
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