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Japan’s Prices Continue to Fall Amid Virus Restrictions

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Yoshiaki Nohara
·3-min read
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(Bloomberg) -- Japan’s key consumer prices edged down in March for an eighth straight month of declines as pandemic-related business restrictions weighed on activity, underscoring the challenge the central bank faces to reach its inflation goal.

Consumer prices excluding fresh food fell at a slower pace of 0.1% from a year earlier, after a 0.4% decline in February, with smaller falls in energy costs and a stabilization of hotel prices helping narrow the drop, the ministry of internal affairs reported Friday. Economists had forecast a 0.2% decrease.

While the narrower decline brings price changes closer to positive territory, economists don’t see inflation gaining much traction toward the Bank of Japan’s 2% target, especially with more activity restrictions set to come into force and cheaper phone plans likely to weigh on the price index in the coming months.

Key Insights

Prime Minister Yoshihide Suga has recommended placing Tokyo, Osaka and other areas under another state of emergency due to rising infection cases. Prices may face additional weakness if consumer activity is further limited as a result of tougher guidelines.“The government wants to limit the movement of the people during the coming ‘golden week’ holidays and that’s going to hurt businesses during what’s normally a busy period,” said economist Nobuyasu Atago at Ichiyoshi Securities Co. Vaccination delays will also push back the economy’s recovery, he added.Inflation remains well below the Bank of Japan’s 2% target after the pandemic pushed prices in the opposite direction. With the likely time frame for achieving the goal pushed further into the future, the BOJ tweaked its stimulus framework last month to make it more sustainable, a move some economists saw as a step toward policy normalization.The central bank is set to update its growth and price forecasts on April 27 and they are likely to show for the first time that the BOJ won’t achieve its inflation goal during Governor Haruhiko Kuroda’s current term.“As long as prices continue to improve slowly, the BOJ won’t make another move after its March policy tweaks. I don’t think Kuroda is expecting inflation to hit 2%. I think he’s more focused on stemming downside risks on prices,” Atago said.

What Bloomberg Economics Says...

“Looking ahead, we expect core inflation to come back to around 0% in April due to base effects of energy prices, which fell sharply during the first virus wave last spring. But renewed virus-containment measures in April will probably keep a damper on inflation.”

--Yuki Masujima, economist

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Gasoline prices started to edge up again, limiting the fall in energy costs. That helped reduce declines in the overall price index by 0.2 percentage point. Excluding fresh food and energy, prices rose 0.3%, matching a forecast by analysts.Accommodation prices were unchanged from a year ago when they started to drop under the pandemic, helping to further narrow overall declines.Overall consumer prices fell 0.2%, in line with economists’ consensus.

(Updates with more detail.)

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