Japan's Deflation Moderates, Unemployment Declines in Signs of a Recovery
Japan’s deflation eased in December and the job market strengthened, supporting the central bank’s view that the economy may pick up this quarter.
Consumer prices excluding fresh food declined 0.4 percent from a year earlier, the statistics bureau said today in Tokyo, the smallest drop since 2009. The unemployment rate unexpectedly fell to 4.9 percent from 5.1 percent, the first decrease since September.
Bank of Japan Governor Masaaki Shirakawa this week said the economy will emerge from its slump “soon” and that deflationary pressures are easing as overseas demand bolsters the nation’s economy. Higher growth could push bond yields higher just as concerns about credit are undermining demand for government debt.
“The economy’s pretty much past its temporary slump,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. “There’s a risk that bond yields could rise on concern about Japan’s fiscal position” if Prime Minister Naoto Kan has trouble passing the budget, he said.
Standard & Poor’s yesterday lowered Japan’s rating to AA-, the fourth-highest level, citing persistent deflation and the government’s lack of a “coherent strategy” to address the nation’s debt burden. Kan, whose approval rating has halved since he took office last year, needs to push his budget through an opposition controlled upper house before the fiscal year starting April 1.
Data Beat Forecasts
The yen traded at 82.75 per dollar at 11:17 a.m. in Tokyo from 82.90 before the reports were published. The yield on the benchmark 10-year government debt fell to 1.215 percent. It touched 1.26 percent in Jan. 19, the highest since Dec. 16.
BOJ policy board members said moves in long-term interest rates “needed to be examined carefully,” because rate swings affect funding costs of companies and households and profits of financial institutions, according to the minutes of the BOJ board’s Dec 20-21 meeting released today.
The Japanese data beat the median analysts’ forecasts for a 0.5 percent drop in consumer prices and an unemployment rate of 5.1 percent.
Signs of improvement bode well for an economy that analysts forecast shrank at a 0.75 percent annual pace in the fourth quarter. Economists surveyed by Bloomberg News see growth accelerating in each quarter this year. Shirakawa signaled this week that the rebound could begin as soon as the first three months of 2011.
‘Recovery Path’
“The economy will probably emerge from its slump soon and return to a moderate recovery path, although I cannot say for sure whether it will happen in the first quarter,” Shirakawa said. “What’s important is that we can foresee a path leading toward deflation’s end, in which price declines will moderate and start rising, and we’re approaching that point.”
The central bank and government both raised their assessments of the economy this month, citing a pick-up in overseas demand and production. Exports growth accelerated for a second month in December and production rose for the first time since in six months in November.
The BOJ policy board this week forecast that consumer prices will increase 0.3 percent in the year starting April, higher than its October prediction of 0.1 percent. For the year ending March 31, prices will probably decline 0.3 percent, the bank said, slower than its prior forecast of 0.4 percent drop.
Price Increases
Seasonings maker Ajinomoto Co. and coffee maker UCC Holdings are increasing prices to protect their profit margins. UCC Holdings, based in Kobe in western Japan, this week said it will raise coffee prices in March because bean costs have increased 1.7 times from a year earlier. That “goes beyond the level our cost-cutting efforts can absorb,” it said in a statement.
Rising commodity costs are contributing to slower consumer price declines. Excluding food and energy, prices fell 0.7 percent last month, slower than the 0.9 percent drop in November.
Abundant liquidity provided by central banks around the world is one reason commodities are surging, Economic and Fiscal Policy Minister Kaoru Yosano said today. Higher costs driven by investors’ speculative trading would be “undesirable,” he said.
Hiring may pick up in coming months, today’s data suggested. There were 101 newly advertised jobs in December for every 100 people who started looking for work that month, the highest since November 2008, the Labor Ministry said today. Economists consider the figure a leading indicator of employment. The job- to-applicant ratio remained unchanged at 0.57, meaning there were 57 job openings for every 100 candidates, the Labor Ministry said today.
Sales Decline
The number of people with work increased by 190,000 from a month earlier, calculated on a seasonally adjusted basis, according to the statistics bureau.
Not all reports showed improvement, with retail sales sliding 2 percent in December from a year earlier as a scaling- back of government stimulus measures discouraged consumer spending.
The BOJ has pledged to keep the key interest rate between zero percent and 0.1 percent until it can expect stable price gains, which board members see at about 1 percent.
The bank will raise interest rates in 2013 at the earliest, ten of 15 economists surveyed by Bloomberg News last week predicted, while three said a rate increase will occur in 2012. One forecast the BOJ will wait until 2014 and one declined to make a forecast.
“Consumer price gains aren’t good news for the Japanese economy because they reduce disposable incomes unless wage growth picks up,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo.
To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net; Aki Ito in Tokyo at aito16@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
Japan’s Consumer Price Drop Eases as Food Prices Surge
Tomohiro Ohsumi/Bloomberg
Japan’s consumer prices fell at a slower pace in December as faster growth in emerging economies boosted the cost of food and energy worldwide.
Japan’s consumer prices fell at a slower pace in December as faster growth in emerging economies boosted the cost of food and energy worldwide. Photographer: Tomohiro Ohsumi/Bloomberg
Bloomberg moderates all comments. Comments that are abusive or off-topic will not be posted to the site. Excessively long comments may be moderated as well. Bloomberg cannot facilitate requests to remove comments or explain individual moderation decisions.