Japan Inflation Registers First Back-to-Back Rise Since 2015

(Bloomberg) -- Japan’s core consumer prices rose slightly for a second month in February, while the jobless rate dropped to the lowest level since 1994.

Key Points

• Consumer prices excluding fresh food climbed 0.2 percent in February from a year earlier (forecast 0.2 percent), registering the first back-to-back gains since late 2015.
• Household spending declined 3.8 percent in February (forecast -1.7 percent).
• The unemployment rate was 2.8 percent (forecast 3 percent) in February.
• Industrial production rose 2.0 percent in February from the previous month (forecast 1.2 percent).

Big Picture

Many economists expect higher oil prices and a weaker yen to push core inflation to near 1 percent later this year. But Bank of Japan Governor Haruhiko Kuroda has warned that price momentum toward the central bank’s goal of 2 percent is not sufficient, and that he would need solid evidence of underlying inflation before raising a key long-term interest-rate target. For now, there is little sign of sustainable inflation, with weak wage gains during spring negotiations indicating consumer spending will likely remain subdued.

Rising concerns about Donald Trump’s ability to implement his pro-growth strategy have strengthened the yen over the past two weeks, underscoring uncertainty in the outlook for inflation and growth in Japan.

Economist Takeaways

• A jump in industrial production and a small gain in core household spending, which strips out certain items, indicate that Japan’s economy continued to record solid growth in the first quarter, Marcel Thieliant, senior Japan economist at Capital Economics, said in a note. 
• "However, there is still no evidence that the tighter labor market is fueling price pressures," Thieliant said, citing higher energy prices as the cause of the recent uptick in the primary inflation gauge.
• The Japanese economy continues to disappoint in that households are left behind without much in the way of raises, even as the labor market tightens and inflation picks up, said Masaki Kuwahara, senior economist at Nomura Securities Co.

Details

• The job-to-applicant ratio was 1.43 (forecast 1.44).
• Overall consumer prices rose 0.3 percent from a year ago (forecast 0.2 percent).
• March consumer prices in Tokyo excluding fresh food, a leading indicator for nationwide prices, dropped 0.4 percent (forecast -0.2 percent).
• Stripping out fresh food and energy, consumer prices rose 0.1 percent (forecast 0.1 percent).

To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net, Keiko Ujikane in Tokyo at kujikane@bloomberg.net.

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Henry Hoenig, James Mayger