Japan’s inflation stagnant in May at 0.7 pct, still way below target

BoJ shows little sign of winning long battle against deflation

TOKYO, June 23, (Agencies): Japanese inflation was stagnant in May, government data indicated Friday, and still far below target as the Bank of Japan shows little sign of winning its long battle against deflation.

Prices in the world’s third-largest economy rose by 0.7 percent year-on-year in May, the same level as the previous month and in line with market expectations.

The country’s central bank and government had set an inflation rate of 2.0 percent as the target to boost the economy but the Bank of Japan last month quietly dropped the goal.

With fresh food and energy stripped out, prices rose by even less — just 0.3 percent in May, the ministry said.

Japan has battled deflation for many years and the central bank’s ultra-loose monetary policy appears to be having limited impact. The Bank of Japan has signalled it has no plans to drop its policy, despite tightening moves in other major economies.

The latest data comes as Japan’s economy slid into reverse for the first time in two years at the beginning of 2018, hit by sluggish consumption and a winter cold snap.

The economy contracted by 0.2 percent quarteron-quarter in the January-March period, compared with growth of 0.1 percent at the end of 2017.

That brought to an end a series of eight consecutive quarters of growth, a winning streak not seen since the heady days of the “miracle” boom of the 1980s when the Japanese economy ruled the world.

A negative reading, while slight, would snap Japan’s longest period of economic expansion — eight straight quarters of growth — since its 1980s bubble economy. But analysts said the expected January-March weakness may be only a temporary soft patch, arguing that higher prices for fresh vegetables and bad winter weather likely weighed on consumer spending in the quarter.

The global economy also has remained firm, suggesting Japan will regain traction in the second quarter, they added. Gross domestic product (GDP) probably shrank at an annualized rate of 0.2 percent in the first quarter after a 1.6 of expansion in the final quarter of 2017, the poll of 18 analysts showed.

That would mark the first contraction in the world’s third-largest economy since late 2015.

The annualized contraction would translate into a flat reading from the previous quarter.

“The economy had steadily recovered but it appeared to have come to a temporary standstill,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.