Japan CPI stopped falling for first time in 13 months, still below BOJ target

September 24, 2021

By Tetsushi Kajimoto

TOKYO (Reuters) – Japan’s core consumer prices stopped falling for the first time in just over a year in August, government data showed, a source of solace for the central bank struggling to accelerate inflation towards its elusive 2% target.

The Ministry of Internal Affairs and Communications data showed nationwide core consumer prices were flat in August compared with the same month a year earlier due to tug of war between rising energy costs and lower mobile phone fees.

That matched a flat reading expected by economists in a Reuters poll, following a 0.2% decline seen in July.

It was the first time since July 2020 that core CPI emerged from negative territory as weak consumption discouraged firms to pass on raw material costs to customers.

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 0.5% in August from a year earlier.

Bank of Japan Governor Haruhiko Kuroda has maintained that excluding special factors such as mobile phone fees and a base year change in core CPI, which excludes fresh foods but includes oil prices, consumer prices have been in a positive territory.

Kuroda has argued that the price trend remained firm and that inflation would gradually accelerate as output gap improves and inflation expectations rise, although inflation is unlikely to reach 2% through the end of Kuroda’s five-year term in 2023.

That means the central bank will likely stick to massive monetary stimulus for the foreseeable future, despite concerns about side-effects of prolonged-low rates such as a hit to banks’ profits.

Friday’s data suggested that a change in the base year for the CPI that gives a heavier weighting to mobile charge fees likely put a drag on core consumer inflation. Mobile phone fees plunged a record 44.8% in August.

The BOJ stuck to its short-term interest rate target at -0.1% and that for 10-year bond yields around 0% at its two-day rate review that ended on Wednesday.

(Reporting by Tetsushi Kajimoto; Editing by Sam Holmes)

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