Japan’s core consumer inflation eased in March for the second straight month, underscoring fears that slumping oil costs and soft consumption because of the COVID-19 pandemic might push the country back into deflation.
The data, released Friday, comes just ahead of the Bank of Japan’s policy meeting on Monday, at which sources have said the bank will sharply cut its growth forecasts and take further steps to ease funding strains on firms affected as the new coronavirus that causes the disease continues to spread.
The crisis has further dented an economy already on the cusp of recession by keeping citizens home and forcing shops to shut down, distracting the BOJ from its efforts to achieve its elusive 2 percent inflation target.
The core consumer price index, which includes oil products but excludes volatile fresh food prices, grew 0.4 percent in the year to March, government data showed, matching the median market forecast. It was slower than a 0.6 percent increase in February.
“The data suggests that underlying inflation has been weakened by declining energy costs, and the trend will accelerate given falling oil prices,” said Masaki Kuwahara, senior economist at Nomura Securities.
“The BOJ will be forced to cut its economic and price projections … and judge the momentum towards achieving its price goal has been undermined,” he said, adding that any steps the central bank takes next week will center on strengthening quantitative easing and corporate financing support.
Japan suffered nearly two decades of deflation — or sustained periods of price declines — until 2013, when the economy emerged from the doldrums thanks in part to Prime Minister Shinzo Abe’s “Abenomics” stimulus policies.
Abe has touted an end to deflation as one of the key successes of Abenomics, which included bold monetary easing undertaken by his hand-picked BOJ Governor Haruhiko Kuroda.
However, the COVID-19 pandemic has taken a heavy toll on the world’s third-largest economy, with service sector sentiment slumping to historic lows and exports plunging on weak global demand.
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