When a country imports almost all its energy, a slide in oil prices to a four-year low should be helpful — cutting costs for companies and households. For Japan, it may not be so simple.
The reliance of the world’s third-largest economy on fossil fuel imports has deepened since Japan shuttered its nuclear power industry following the March 2011 Fukushima meltdowns. With the price of Dubai crude oil — a benchmark for Middle East supply to Asia — down more than a third from a June peak, that ought to mean more disposable cash for households who have been hit by an April sales tax hike.
Economy Minister Akira Amari reinforced this good-news interpretation Friday, telling reporters in Tokyo that cheap oil helps to offset the impact of a tumbling yen — which drives up the cost of imported goods. Where sliding energy costs are a challenge is the campaign by policy makers to embed inflationary expectations across the economy.
After 15 years of entrenched deflation, central bank Gov. Haruhiko Kuroda is trying to get sustained 2 percent gains in consumer prices. Until wage rises are so big that they make companies push up prices, much of the onus is on import costs, so a slump in oil undercuts Kuroda’s efforts.
“The declining oil prices are positive to consumers and companies, but they give Kuroda a headache as he commits on prices rather than economic growth,” said Hiroaki Muto, an economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The answer could be further monetary easing.”
Consumer prices excluding fresh food rose 2.9 percent in October from a year earlier, the statistics bureau said Friday. Stripped of the effect of April’s sales tax hike, core inflation — the BOJ’s preferred measure — was 0.9 percent.
Energy prices dropped 0.8 percent from a month earlier, Friday’s report showed. Japanese gasoline prices declined for a 19th straight week to ¥158.3 per liter last week, the trade ministry said.
The BOJ forecast in October that its key inflation measure will rise 1.7 percent in the year through March 2016 and 2.1 percent in the following year.
“It will probably be difficult to achieve the 2 percent price goal by the end of the next fiscal year,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. “There’s a high chance that the BOJ will apply further monetary easing sometime around July,” when the midterm report on the BOJ’s price and growth outlook will be released.
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