Japan Reports Fifth Month of Deflation

The Japanese consumer prices slumped for the fifth consecutive month, adding to the pressure already on the Japanese government to follow up on Prime Minister Shinzo Abe’s earlier promises of future stimulus. A report by the state-run Statistics Bureau released on Friday reveals that the national consumer price index (CPI) fell by an annualized rate of 0.4% in July, after a drop at the same rate in the previous month. The fall was the exact median figure estimated by economists.

The core CPI which measures the price movements of a basket of goods and services which exclude food products dropped by 0.5% in the 12 months ending on July 31^st, the national core CPI also slumped at a similar rate in the previous month. In Tokyo, there was a 0.4% annualized fall in the rate of core inflation for August after a 0.4% year over year drop in the previous month.

The released data shows a fifth consecutive month of progressive deflation in the Japanese economy, as it mounts extra pressure on policy makers to implement new measures of economic stimulus. The Bank of Japan earlier increased their ETF purchase program at their July 29^th policy meeting, but have remained reluctant to cut interest rates, their next meeting will hold in September.

On the trail of the fundamental release the Japanese yen was unchanged against a basket of other major currencies. The minimal response from the market could be the result of the BoJ’s price estimates from its July monetary policy announcement. The central bank also anticipates that the CPI will stay marginally negative or pinned at 0% for a brief period. This means that today’s release may not result in a heightened urgency for stimulus expansion on the part of the central bank.

Many Analysts have shown anticipation that the BOJ will expand stimulus measures at its September policy meeting after the Summary of Opinions report implied that there were plans for an extremely large stimulus package. More stimulus is all but a given in the wake of Prime Minister Shinzo Abe’s sweeping upper house election victory in July. The Japanese leader is looking to expand his so-called Abenomics program, and will likely do so this fall.

With a super-majority in both the upper house and the lower house, Abe will also press for revising Japan’s US-drafted charter, long considered to be a source of humiliation among conservatives. The Japanese economy slowed to a near complete halt in the second quarter, as plunging exports and weak business spending weighed.  The economy expanded at an annualized 0.2% in the second quarter following an upwardly revised 2% gain the previous quarter.

Asian shares had variable reactions to the release on Friday with Tokyo down after consumer price figures disappointed and investors exercised caution ahead of remarks from the U.S. Fed chief later in the day. The Nikkei 225 fell by 0.65%, while the S&P/ASX 200 was down by 0.19% and the Shanghai Composite edged up 0.35%.