BUSI­NESS ‘Abe­nomics’boosts Ja­pan’s war on de­fla­tion

Weekend Argus (Saturday Edition) - - LIFE -

TOKYO: Ja­pan’s war on de­fla­tion re­ceived a boost last month with a key in­fla­tion in­di­ca­tor ris­ing at its fastest pace in 15 years, new data showed yes­ter­day, as Tokyo bat­tles to re­verse years of fall­ing prices.

Strip­ping out volatile food and en­ergy prices, which have largely driven re­cent in­creases, prices inched up 0.6 per­cent last month, the coun­try’s best re­sult since Au­gust 1998.

The broader con­sumer price in­dex, which mea­sures a bas­ket of ev­ery­day goods, but ex­cludes the cost of fresh food, rose 1.2 per­cent last month from a year ear­lier, the fastest pace in five years.

Prime min­is­ter Shinzo Abe’s gov­ern­ment has put con­quer­ing de­fla­tion and stok­ing growth in the world’s third­largest econ­omy at the top of its agenda with a pol­icy blitz dubbed “Abe­nomics”.

The up­beat head­line for yes­ter­day’s in­fla­tion data was tem­pered by the fact that prices were still largely driven up by higher fuel bills, not surg­ing de­mand for ev­ery­day goods, such as vac­uum clean­ers and clothes, which power the econ­omy as a whole.

Elec­tric­ity bills jumped a hefty 8.2 per­cent, the data showed, as Ja­pan’s en­ergy costs soar in the wake of the 2011 Fukushima atomic dis­as­ter, which forced the shut­down of the na­tion’s nu­clear re­ac­tors.

Since the ac­ci­dent, Ja­pan has been im­port­ing fos­sil fu­els to plug the en­ergy gap, a pricey op­tion that has be­come even more ex­pen­sive as the yen sharply weak­ened in the wake of the Bank of Ja­pan’s (BoJ) un­prece­dented mone­tary eas­ing drive.

Yes­ter­day’s data showed prices mov­ing to­wards the BoJ’s am­bi­tious 2 per­cent in­fla­tion tar­get – to be reached in just two years. While de­fla­tion may sound like a good thing for shop­pers, it can be bad for growth, be­cause fall­ing prices en­cour­age con­sumers to put off spend­ing, know­ing they will pay less for a prod­uct if they wait. That makes it dif­fi­cult for com­pa­nies to in­vest and dis­cour­ages them from hik­ing wages, which, in turn, re­duces con­sumer spend­ing fur­ther.

De­spite Abe’s much-lauded start since sweep­ing na­tional elec­tions a year ago, an­a­lysts have been warn­ing that Tokyo’s bold pro-growth pro­gramme – a mix of big gov­ern­ment spend­ing and cen­tral bank mone­tary eas­ing – is not enough on its own with­out promised eco­nomic re­forms.

And get­ting Ja­pan’s no­to­ri­ously thrifty house­holds to spend more is a key part of Abe’s drive, as are yet-to-be­seen wide­spread wage rises.

That was in ev­i­dence yes­ter­day, with sep­a­rate data show­ing Ja­pan’s house­hold spend­ing inched up 0.2 per­cent last month, well be­low mar­ket ex­pec­ta­tions, as con­sumers get ready for a sales tax hike next year.

Mean­while, Ja­pan’s fac­tory out­put ex­panded by a weak­erthan-ex­pected 0.1 per­cent last month, while the un­em­ploy­ment rate held steady at 4.0 per­cent.

Last week, the BoJ held off fresh pol­icy mea­sures to stim­u­late growth, say­ing the econ­omy was “re­cov­er­ing mod­er­ately” while its ef­forts to stoke in­fla­tion were tak­ing hold. But Ja­pan’s eco­nomic growth slowed markedly in the Ju­lySeptem­ber quar­ter as ex­ports weak­ened and con­sumer spend­ing slowed. – Sapa-AFP

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