Japan prices rise at fastest pace since 2008

Japan prices rise at fastest pace since 2008
Japan’s consumer prices increased at the fastest pace since 2008, with the majority of the gains coming from energy. Photo: Bloomberg
Published: 4:02 AM, August 31, 2013
Updated: 4:00 AM, September 2, 2013
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TOKYO — There is growing evidence that the Japanese economy is waking up from 15 years of deflationary slumber, following the increase of consumer prices at the fastest pace since 2008 last month, which added to signs that Prime Minister Shinzo Abe is making progress in injecting some life into the economy.

Mr Abe and the Bank of Japan (BoJ) have gambled on massive fiscal and monetary stimulus to spark life in the economy and the accumulating signs of an upswing are seen as strengthening the case for a planned sales tax increase.

Core consumer prices, excluding fresh food, rose 0.7 per cent in the year to July, a second straight month of increase and the largest since a 1 per cent rise in November 2008, data from the Ministry of Internal Affairs and Communications showed.

The BoJ has a target of lifting inflation to 2 per cent in about two years, a goal many analysts see as optimistic given the deflation that has dogged the economy.

“The majority of gains in consumer prices still come from energy and the upward pressure on energy prices is likely to start to slow in coming months,” said Mr Shuji Tonouchi, Senior Fixed Income Strategist at Mitsubishi UFJ Morgan Stanley Securities.

“Things are basically on track for the BoJ, but I would not get overly optimistic on prices just yet.”

The bank has acknowledged that the success of its policy depends on whether it can make firms and households believe that inflation is around the corner. Inflationary expectations will prompt them to spend and invest more, thereby reducing deflationary pressure, it has said.

Separate figures yesterday also painted a brightening picture for the country, with unemployment falling to its lowest since late 2008, factory output rising with expectations for further growth and workers’ incomes up.

At its policy review next week, the BoJ is expected to maintain the stimulus it launched in April, with the focus on whether the board revises up its assessment of the economy to say more convincingly that it is recovering.

Japan’s economy grew an annualised 2.6 per cent in April to June, marking the third straight quarter of expansion. But the growth was slower than expected, offering ammunition to those seeking to change a plan to raise the 5 per cent sales tax rate to 8 per cent next April and 10 per cent in October 2015.

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