Japan′s war on deflation cast in fresh doubt | Business| Economy and finance news from a German perspective | DW | 27.02.2015
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Japan's war on deflation cast in fresh doubt

Japan's inflation rate has slowed for the sixth month in a row despite the Bank of Japan's massive monetary stimulus to spur growth. Falling prices put a damper on Tokyo's hopes to overcome years of deflation.

Consumer prices in Japan rose at an annual rate of 2.2 percent in January, down from 2.5 percent in December, the Ministry of Internal Affairs and Communications said Friday.

Excluding the effect of a sales tax hike in April, the inflation rate had been 0.2 percent in January, the ministry said - much lower than the inflation target of 2 percent set by the Bank of Japan (BoJ) in April 2013.

The ministry also reported that household spending dropped 5.1 percent from a year earlier to 289,847 yen ($2,436 or 2,166 euros) - the 10th straight month of decline.

Japan's Prime Minister Shinzo Abe took office in December 2012 vowing to overcome deflation that had plagued the world's third largest economy for nearly two decades. He was joined by the BoJ, which has since pumped trillions of yen into the economy to kickstart spending and growth.

BoJ to keep taps open

January's disappointing figures challenge Bank of Japan Governor Haruhiko Kuroda's persistent claim that inflation is on the up. Just on Friday, Kuroda insisted that an expected recovery in oil prices - which have dropped by about half since mid-2013 - would help the BoJ get its inflation target back on track.

"As the effects of declining crude prices dissipate, the two-percent inflation target is likely to be achieved," the BoJ chief said.

Kuroda added the bank was likely to further expand its unprecedented monetary easing campaign if necessary. However, minutes from the central bank's January meeting showed that three of nine BoJ board members doubted the chances of reaching the price target.

Mixed bag of economic data

Friday's inflation data were part of a mixed bag of economic figures from Japan, which also included a better-than-expected expansion in factory activity. Industrial output rose 4 percent month-on-month.

Japan's jobless rate edged up slightly from 3.4 percent in December to 3.6 percent last month.

At the end of 2014, the world's third largest economy limped out of recession with weak growth of just 0.6 percent between October and December. Over the full year, the preliminary data showed zero growth.

Following an increase in sales tax from 5 percent to 8 percent in April, Japan's economy, however, fell back into recession. This has prompted Abe to put off a second sales tax hike scheduled for later this year and aimed at reigning in Japan's skyrocketing sovereign debt of about 240 percent of gross domestic product (GDP).

uhe/ng (AFP, dpa, Reuters)

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