Japan Household Spending Falls as June Inflation Stalls

Japan’s annual core consumer inflation stalled and household spending unexpectedly fell in June, underscoring the challenges the central bank faces in reflating the economy to meet its ambitious 2 percent price target.  Friday’s soft indicators reinforce views the economy probably slowed sharply in April-June from the prior quarter, with some analysts expecting to see a contraction when the GDP data is published on August 17.

For now, the Bank of Japan is expected to hold off on expanding monetary stimulus as policymakers have repeatedly said they will look through the effect of last year’s oil rout that is mainly behind the slowdown in inflation.  “The BOJ is pinning its hopes on a strong rebound in demand, which would create capacity shortages and stoke price pressures. Unfortunately, today’s data on consumer spending underline that these hopes are unlikely to materialize,” said Marcel Thieliant, Japan Economist at Capital Economics.

Annual core consumer inflation, which includes oil products but excludes volatile fresh food prices, rose 0.1 percent in June, government data showed on Friday, slightly exceeding market expectations of no change.  Core consumer prices in Tokyo, a leading indicator of nationwide inflation, fell 0.1 percent in July, the first annual decline since April 2013.