Japan’s consumer prices fall at fastest pace in decade, stoke deflation fears

FILE PHOTO: A staff wearing a face shield sells fish at Japan's supermarket group Aeon's shopping mall as the mall reopens amid the coronavirus disease (COVID-19) outbreak in Chiba
FILE PHOTO: A staff wearing a face shield sells fish at Japan's supermarket group Aeon's shopping mall as the mall reopens amid the coronavirus disease (COVID-19) outbreak in Chiba, Japan May 28, 2020. REUTERS/Kim Kyung-Hoon/File Photo

December 18, 2020

By Kaori Kaneko and Leika Kihara

TOKYO (Reuters) – Japan’s core consumer prices dropped in November at their fastest pace in a decade as the coronavirus pandemic hit demand, stoking fears of a return to deflation and wiping out the benefits former premier Shinzo Abe’s stimulus policies.

The weak data will keep the Bank of Japan, which is meeting for a two-day rate review ending on Friday, under pressure to maintain its massive stimulus programme.

Core consumer prices, which exclude volatile fresh food costs, fell 0.9% in November from a year earlier, government data showed on Friday, matching a median market forecast.

It was the fourth straight month of falls and the fastest pace of year-on-year decline since September 2010.

While the drop was blamed largely on the government’s travel discount campaign and weak energy prices, it underscored how sluggish domestic demand was in keeping a lid on prices and hobbling the recovery from a pandemic-induced slump.

“The resurgence in inflections will keep people home and an expected decline in winter bonus payments will prevent a pickup in consumption,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Consumer prices will keep falling heading into 2021.”

The economy grew at the fastest pace on record in July-September, rebounding sharply from its biggest postwar slump, as exports and consumption recovered from the initial hit from the pandemic.

But analysts expect any further recovery to be modest as a resurgence in infections clouds the outlook.

The Japanese capital Tokyo, faced with acute strains on its medical system from the COVID-19 pandemic, raised its alert level to the highest of four stages on Thursday as the number of new cases spiked to a record daily high of 822.

Japan’s cabinet on Tuesday approved a third supplementary budget to fund a $708 billion stimulus package, to speed up the economic recovery from its COVID-induced decline.

The government plans a record-high $1.03 trillion budget for the next fiscal year to maintain its support for companies and households hit by the pandemic, sources have told Reuters.

(Reporting by Kaori Kaneko and Leika Kihara; Editing by Sam Holmes)