By Mayumi Otsuma
May 25 (Bloomberg) -- Japan's consumer prices fell at a slower pace in April, signaling gains may soon resume, making it easier for the central bank to raise interest rates.
Core prices, which exclude fresh food, declined 0.1 percent from a year earlier, the statistics bureau said today in Tokyo, matching economists' estimates. The measure of inflation fell 0.3 percent in March, the steepest drop in two years.
Rising prices would shore up support for the Bank of Japan's policy of increasing its 0.5 percent benchmark interest rate, the lowest among major economies. Governor Toshihiko Fukui said last week that the bank could raise rates even with prices falling to prevent excessive investment and sustain growth.
``The improvement of consumer prices certainly provides relief and gives the BOJ's arguments some conviction,'' said Eishi Yokoyama, an economist at AIG Global Investment Corp. in Tokyo. ``We're going to see more speculation among investors about an early rate hike.''
The yen strengthened to 121.09 per dollar at 12:21 p.m. in Tokyo from 121.41 before the report was published, and to 162.55 per euro from 163.00. The yield on Japan's 10-year bond rose half a basis point to 1.7 percent.
Fukui has said prices will rise again once the effect of last year's gain in oil prices fades. The bank needs to increase the key rate as the economy expands and inflation gathers pace, he said.
End of Deflation
``The end of deflation is in sight,'' Economic and Fiscal Policy Minister Hiroko Ota said today. ``The risk that prices may keep falling remains, so we can't yet declare the end of deflation.''
Finance Minister Koji Omi said there was ``some improvement'' in prices last month. He said the central bank's policy should support economic growth.
April's decline in core consumer prices was the third straight monthly drop. Core prices in Tokyo, a harbinger of nationwide prices, were unchanged for a second month in May, also in line with economists' expectations.
Dubai crude, a benchmark for Asian refiners, traded at more than $70 a barrel last August, compared with around $67 today.
``The impact of last summer's oil price gains near records will linger over core prices for the time being, and they won't become positive until November,'' said Mitsumaru Kumagai, chief fixed-income strategist at Merrill Lynch & Co. in Tokyo.
IMF, OECD
Both the International Monetary Fund and the Organization for Economic Cooperation and Development yesterday urged the bank to keep rates on hold until prices ``firmly'' rise. The IMF said it's ``appropriate'' for the bank to gradually raise rates.
The bank needs to closely watch how companies pass recent increases in energy and raw material costs to consumers, some members of the policy board said at an April 9-10 meeting, according to minutes published this week.
Recent price increases suggest inflationary expectations are reviving among consumers and prices will resume rising.
Oji Paper Co. will increase prices of paper for catalogues and books by 10 percent from July 1 because of higher costs of materials including wood chips, Hidehiko Aoyama, deputy head of Oji's printing paper division, said this week.
Taxi companies in Nagano and Oita prefectures raised fares by about 10 percent last month and taxi services in more than half of Japan's 90 operating districts are asking regulators for permission to increases fares.
Anecdotal Evidence
``The recent anecdotal evidence gives reason to expect gains in inflation in June or July,'' said Hiromichi Shirakawa, a former central bank official who's now chief economist at Credit Suisse in Tokyo. ``There's an argument that Japanese companies may not have room to keep cutting costs. That's why the risk to the CPI is to the upside.''
The bank should also watch how the revision of service prices in April or later will affect consumer prices, board members said. Businesses often review prices when Japan's fiscal year starts in April. The prices companies pay for services climbed 0.6 percent in March, the fastest pace in nine years.
``As in the U.S. and other developed countries, consumer price trends should be heavily dependent on services because prices of goods remain slack,'' said Tetsufumi Yamakawa, chief economist at Goldman Sachs Japan Co. in Tokyo., also a former BOJ official.
BOJ's Mizuno
Atsushi Mizuno, a central bank board member, told Jiji Press this week that a weaker yen and costlier materials are mounting pressure on companies to raise prices. A recovery in consumption makes it easier for households to accept price increases, he added, according to Jiji.
Consumer spending has risen in the past two quarters and may cushion the economy from slower growth in the U.S., Japan's largest market.
``Fears that core price declines may worsen are receding among consumers, and prices are gradually settling onto an upward trend,'' said Azusa Kato, an economist at BNP Paribas Securities in Tokyo, who expects prices to resume rising in the fourth quarter and the bank to raise rates in the same period.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
No comments:
Post a Comment