Japan Consumer Prices Rise Before Tax Hike

Consumer prices in Japan increased by 1.3% in February compared with the same period last year, marking the ninth month in a row of gains.

The figure met analysts’ expectations, but is still well below Prime Minister Shinzo Abe’s inflation target of 2%.

Japanese consumer spending also slowed, official data revealed, ahead of a planned tax increase in April.

A separate release revealed that Japan’s jobless rate fell to 3.6% – the lowest rate in six years.

When the tax increase comes into effect next month, sales tax on everyday goods will increase from 5% to 8%. Mr Abe has argued the tax increase is necessary to cut Japan’s rising public debt, as its population ages.

The increase in consumer prices could help Japan combat its common foe – deflation, or decreasing prices – but could also slow down economic activity.

The figures have fuelled speculation about whether or not the Bank of Japan will step in with further stimulus measures should the tax increase have an adverse impact.

Already, analysts have been surprised by falling consumer spending – defying expectations that the planned tax increase would lead to a rush of shopping before its implementation.

Official figures also showed that household spending posted a surprise decline of 2.5% in February.

Retail sales in Japan increased by 3.6% in February, which is slower than the 4.4% growth in January.

However, some analysts blamed the decline on harsh weather over much of the country during the month.

via BBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza