Weak Japan Inflation, Spending Numbers Keep BoJ Easing on Table

October 30,2015
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(Photo by Yuya Shino/Reuters)

(AFP)--Japan posted weak inflation and household spending figures on Friday that boost the chances the central bank will unleash another wave of stimulus after a meeting later in the day.

All eyes are on the Bank of Japan and governor Haruhiko Kuroda to see if he opens up his Halloween loot bag with an expansion of a record 80 trillion yen ($665 billion) annual asset-buying scheme.

There is also speculation the BoJ would roll back its inflation and growth projections as Japan teeters on the edge of recession.

Friday's policy meeting comes a year after the bank widened the programme first launched in April 2013 -- it is similar to the Federal Reserve's quantitative easing scheme to pump money into the economy and stoke growth.

BoJ monetary easing is a cornerstone of Prime Minister Shinzo Abe's growth blitz, dubbed "Abenomics", which has faltered after intially setting off a stock market rally and weakening the yen, giving a lift to corporate profits.

Abe has struggled in his efforts to cut red tape and shake up the regulated economy and the impact of his plan on the wider economy has been limited.

On Friday, government data showed that consumer prices contracted 0.1% in September from a year ago, dealing another blow to Tokyo's efforts to slay years of deflation.

The fall in core inflation, which excludes volatile fresh food prices, came after the world's third largest economy in August suffered the first price decline since 2013.

Weak domestic demand and plunging energy prices have all but wiped out an initial boost supplied by the BoJ stimulus.

Household spending also fell last month, in a sign that efforts to turn around Japan's so-called "deflationary mindset" were struggling.

'Shaky ground'

 While falling or stagnant prices may seem like a good thing for consumers, they tend to put people off buying and that, in turn, hurts firms which roll back their new investment and hiring.

"The BoJ's monetary accommodation over the past two and a half years has had only a limited impact on Japan's growth and inflation," said Kiichi Murashima, chief economist at Citigroup in Japan.

A sales tax rise last year also hammered consumer spending, denting demand for products made by Japanese firms which also faced slowing growth overseas.

Standard & Poor's cut its sovereign credit rating on Japan last month, saying Tokyo has little chance of reinvigorating the moribund economy in the short-term, with social welfare costs spiralling.

On Thursday, separate data showed Japan's factory output unexpectedly rebounded last month, tempering expectations for BoJ easing.

The weak data on Friday put the chances of more stimulus back on the table, although excluding food and energy prices, Japan's inflation rate ticked up last month but still well short of the central bank's 2.0 % target.

"But the rebound in underlying inflation rests on shaky ground, and we still see good chances that governor Kuroda will spring a surprise," research house Capital Economics said in a note.

Japan has suffered as exports to key trading partner China slumped, with the weak inflation and consumer spending at home also slamming the brakes on growth.

The economy contracted in the second quarter and it is on track for another decline in the three months to September.