Japan’s Core CPI Falls Into Negative Territory – Deflation Ahead?

Japanese core consumer prices registered their first decline in over first three years during April, raising the risks of a possible deflation coming up and adding to the already strained economy. According to data released by the BOJ, core CPI fell by 0.2% YoY in April, the first slide into the negative area since December 2016.

The figure came in worse than the previous month’s reading when core CPI rose by 0.4% and economists’ forecast for a reading of -0.1%. The crash in crude oil prices even as the country remains in shutdown mode due to the coronavirus pandemic have driven the core CPI down, making it even harder for the BOJ to meet inflation’s target set at around 2%.

Meanwhile, the core core CPI, which excludes highly volatile food and energy prices, showed a 0.2% increase for the month of April. In the wake of the disappointing figures, the BOJ is widely expected to announce more measures to stimulate the economy by way of boosting lending, especially to smaller businesses that have been impacted by the coronavirus crisis.

In a sign indicating more worry ahead for the Japanese economy, analysts expect the deflation in CPI to worsen over the coming months as domestic demand is likely to remain under pressure owing to the rising uncertainty about the country’s and the global economy’s outlook. In addition, crude oil and energy prices are also likely to remain weak in the near future as the pandemic weighs on oil demand, which is likely to keep the CPI readings weak.

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