World Economic outlook - Japan economic january-february 2012 : Japan’s core consumer prices fell year on year for the fourth consecutive month in January, suggesting mild deflation may persist this year as lacklustre wage growth curtails domestic demand. Core consumer prices declined an annual 0.1 percent, slightly less than the median estimate for a 0.2 percent decline, and a narrower measure that excludes both food and energy also fell in a sign that the Bank of Japan faces a long campaign to pull the economy out of deflation.
The central bank surprised traders last month by easing monetary policy and setting an inflation goal of 1 percent. Friday’s consumer price data suggest the BOJ will have to stick with its ultra-easy monetary policy for several more years.
“Since the rise in crude oil prices is accelerating and Japan’s electricity bills are set to go up in coming months, the consumer price trend may face upward pressure from here on,” said Junko Nishioka, chief economist at RBS Securities in Tokyo.
“But this is not because of an economic recovery, so it has few implications for monetary policy. The focus is on how higher energy costs will hurt consumption.” The core consumer price index includes oil products but excludes volatile prices of fresh fruit, vegetables and seafood.
The so-called core-core inflation index, which excludes food and energy prices and is similar to the core index used in the United States, fell 0.9 percent in the year to January.
Core consumer prices in Tokyo, available a month before the nationwide data, declined 0.3 percent in the year to February. That compares with the median estimate for a 0.4 percent annual fall.
The seasonally adjusted unemployment rate rose to 4.6 percent in January from a revised 4.5 percent in December, against economists’ median forecast of 4.5 percent. All household spending fell 2.3 percent in January from a year earlier in price-adjusted real terms, bigger than the median estimate for a 0.8 percent annual decline.
The BOJ eased monetary policy on Feb 14 with a 10 trillion yen increase in government bond purchases and set an inflation goal of 1 percent, signalling more aggressive efforts to end a prolonged spell of deflation.
Japanese factory output rose more than expected in January and firms expect further gains, increasing confidence that demand is stabilising and manufacturing is set to return to where it was before the dislocation caused by last year's natural disasters.
The government upgraded its assessment on Wednesday to say industrial production was showing signs of picking up, and a separate survey showed the pace of recovery was expected to be modest as the strength of the yen and uncertainty over Europe persist.
Industrial output rose 2.0 percent in January, beating a median forecast of a 1.5 percent gain, and manufacturers' forecasts for February and March suggested the index is set to return to where it was before last March's earthquake.
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