Deflation fears creep back Japan as pandemic hits prices
02 May, 2020
Consumer prices in Japan's capital city fell for the first time in 3 years in April and national factory activity slumped, data showed on Friday, increasing worries the coronavirus pandemic could tip the united states back into deflation.
The darkening outlook in the world's third-largest economy is already heightening calls for bigger spending, even after parliament approved an extra budget to fund a 110 trillion yen stimulus package to cushion the blow from the pandemic.
"The government will work with the central bank to ensure Japan absolutely will not slip back to deflation," Economy Minister Yasutoshi Nishimura told a news conference on Friday.
Core consumer prices in Tokyo, a leading indicator of nationwide inflation trends, slipped 0.1% in April from a year earlier, government data showed, dashing expectations for a 0.1% rise and carrying out a 0.4% upsurge in March.
It was the first year-on-year decline since April 2017.
As the drop was largely because of slumping energy costs following the collapse in the crude oil price, it has consolidated expectations that Japan will see consumer prices fall in coming months as the economy feels a sharper hit from the pandemic.
Another business survey on Friday confirmed Japan's factory activity shrank at its quickest pace in more than a decade in April, as the coronavirus hurt output and new orders.
Japan suffered nearly two decades of deflation - or sustained periods of price declines - until 2013, when Prime Minister Shinzo Abe's "Abenomics" stimulus policies helped to revive parts of the economy out of the doldrums.
Abe has touted a finish to deflation as among key successes of his policies, which included bold monetary easing undertaken by his hand-picked Bank of Japan Governor Haruhiko Kuroda.
However the coronavirus pandemic has taken much monetary toll and stoked fears of a return to falling prices.
Many analysts believe Japan is already deep in recession as government requests for citizens to stay home and businesses to turn off chill consumption, while similar curbs elsewhere have triggered a collapse in global trade.
"A sharp deterioration in Japan's economy is unavoidable, as domestic demand plunges," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
Analysts expect an financial contraction in today's quarter to be bigger than the 17.8% decline in the first quarter of 2009, during the global financial crisis.
The median forecast for Japan's April-June gross domestic product (GDP) is for a 22.0% fall, a Reuters poll of 18 economists showed. That could follow an expected 4.5% first-quarter decline. Japan releases preliminary first-quarter GDP data on May 18.
Household spending data released on May 8 is expected to show a 6.7% decline in March from a year earlier, a separate Reuters poll showed.
The dismal projections have loudened demands policymakers to crank up already massive fiscal and monetary support.
The BOJ boosted monetary stimulus at its policy meeting this week and pledged to flood additional money in to the ailing economy.
Minutes of the BOJ's March rate review showed board members voicing concerns about a cash squeeze for small firms, spiking unemployment and a slump in business spending.
"It's uncertain whether Japan's economy could make a solid rebound even following the pandemic is contained," several BOJ board members were quoted as saying at the March meeting.
Kuroda said on Thursday the BOJ may hold a crisis meeting before a scheduled rate review in June to create incentives for finance institutions that boost lending to small firms.
Japan is likely to extend its state of emergency for containing the coronavirus, public broadcaster NHK reported, even while other countries reopen.
Source: japantoday.com
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