Japan falls back into deflation for the first time since 2013

25-Sep (FT) — Japan has fallen back into deflation for the first time since April 2013 in a symbolic blow to prime minister Shinzo Abe’s economic stimulus.

Headline prices, excluding fresh food, were down by 0.1 per cent compared with a year ago in August, as slumping global energy prices outweighed stronger domestic inflation in Japan.

The figures create a conundrum for the Bank of Japan: while it is encouraged by signs of inflation at home, the fall in headline prices risks creating the impression its policy has failed, especially given sluggish economic growth.

That is leading to rising pressure on the BoJ to ease monetary policy further when it updates its economic forecasts at the end of October.

…Haruhiko Kuroda, the governor of the BoJ, has taken to highlighting the spread of domestic price rises as a sign his policy is working. “If you look at goods used every day or week like food and household products, the proportion with rising prices was higher after April in particular,” said Mr Kuroda at a recent press conference.

He has continued to insist Japan can reach 2 per cent inflation by the middle of fiscal year 2016 even though most analysts think that goal is now out of reach.

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PG View: Way to find the bright spot Kuroda-san.