By Kaori Kaneko
TOKYO – Japan’s core consumer prices fell for a second straight month in May, reinforcing deflation risks and raising the challenge for policymakers battling to revive an economy reeling from the coronavirus pandemic.
Friday’s price data will likely complicate the Bank of Japan’s protracted efforts to foster sustainable growth and inflation, with a raft of recent indicators suggesting the nation is in the grip of its worst postwar economic slump.
The BOJ has stepped up its monetary easing in response to the pandemic, but kept policy steady this week and governor Haruhiko Kuroda conceded that inflation will remain subdued in the coming years.
The core consumer price index (core CPI), which includes oil products but excludes volatile fresh food prices, declined 0.2% in May from a year earlier, government data showed on Friday.
That compared with the median market forecast of a 0.1% fall.
In April, the core CPI index also dipped 0.2% year-on-year, its first decline since December 2016.
The so-called core-core price index, which excludes food and energy prices and is closely tracked by the central bank as a narrower gauge of inflation, grew 0.4% in May after a 0.2% gain in April.
Despite an uptick in demand for daily necessities such as food, economists say the coronavirus outbreak risked increasing deflationary pressure in Japan as people postpone travel plans and spend less
Analysts expect an annualised economic contraction of more than 20% in the current quarter as the once-in-a-century pandemic slams the brakes on global growth. The downturn is also likely to have been exacerbated by Japan’s state of emergency in April through late May, which prompted people to stay home and businesses to close.
Although businesses have re-opened, analysts warn the eventual economic recovery will likely take many more months to kick in to full gear.
The BOJ stuck to its view this week that the economy will gradually recover as the pandemic subsides in the latter half of the year, suggesting it has taken enough steps for now.
Prime Minister Shinzo Abe has responded with two stimulus packages totalling $2.2 trillion, but many businesses have complained that red tape has slowed critical support measures.
(Editing by Shri Navaratnam)
