Japan Inflation Threatens Economic Policy Agenda

Japan’s annual core consumer inflation eased in August in another sign that the Bank of Japan could eventually be forced to take additional easing steps to meet its 2 percent price goal sometime next fiscal year.  But there is virtually no chance for more easing at the BOJ’s next meeting ending Oct. 7, although central bankers are sure to debate the BOJ’s next “tankan” business survey, which is forecast to show a weakening in sentiment due to a sales tax hike in April.

Lacklustre inflation and sentiment, combined with recent weakness in consumer spending and exports, could also force the government to compile a stimulus package to see the economy through a second sales tax hike scheduled for next year.  “The BOJ will have to ease policy next year, because inflation will not accelerate again,” said Takuji Aida, chief economist at Societe Generale Securities.

“The second sales tax hike has already been passed as a law, but the government will implement a large stimulus package.”  Core consumer prices, which include oil products but exclude fresh food, rose 3.1 percent in August from a year earlier, less than the median estimate for a 3.2 percent annual gain and following a 3.3 percent annual rise in July.


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