Will Japan's Consumer Price Index Dip Below Zero?

The Bank of Japan has a massive quantitative easing program in place to fight the nation's long-running battle with deflation.

Despite the stimulus, BOJ Governor Haruhiko Kuroda acknowledges that consumer price deflation may be in the cards, largely due to lower oil costs.

Even so, Kuroda does not plan immediate additional easing. If Japan's CPI does dip below zero, he expects the decline to only be temporary. Kuroda anticipates that wage growth and a stronger economy will help the BOJ to meet its 2% inflation target.

A March 17 Bloomberg article is titled, "Kuroda Won’t Rule Out CPI Dipping Below Zero, Keeps Stimulus". Here's an excerpt:

Governor Haruhiko Kuroda said he couldn’t rule out the risk of consumer prices falling in Japan after the central bank on [March 17] maintained record monetary stimulus.

The BOJ kept a pledge to expand the monetary base at an annual pace of 80 trillion yen ($660 billion), as forecast by all 34 economists in a Bloomberg News survey. Kuroda stuck to his view that the world’s third-largest economy will continue a moderate recovery and that the central bank is still on track to meet its inflation goal.

Kuroda is counting on the benefits of lower oil prices to wash through the economy, spurring growth and inflation in the longer term. The immediate focus is on the outcome of wage talks between companies and their unions that will indicate whether businesses are passing along more of their record cash holdings and profits to workers.

"The BOJ won’t add stimulus for a while," said Koya Miyamae, an economist at SMBC Nikko Securities Inc. "They are likely to defend their position by pointing to encouraging signs in the wage talks and an expected fading impact of oil on consumer prices." …

While acknowledging the possibility that inflation could turn slightly negative for a short time, depending on oil-price moves, Kuroda stuck to his view that the central bank’s 2 percent target will be achieved. Inflation expectations have been maintained and the underlying price trend remains intact, he said at a briefing.

Consumer price gains will pick up strongly in the second half of the fiscal year starting in April, reaching the BOJ’s goal "in or around" the fiscal period, Kuroda said. The central bank will adjust policy as appropriate, should its target be at risk, he said.

Nearly two years since the BOJ introduced unprecedented easing, its main inflation gauge has slowed to just one-tenth its 2 percent target as tumbling oil prices ripple through the economy.

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