Fresh data show prices nearly flat and household spending weak
TOKYO—Prime Minister Shinzo Abe enters 2016 with his effort to revive Japan’s economy still struggling to gain traction, after data showed Friday that prices remained nearly flat and household spending was weak.
The data spurred expectations that the country’s central bank will be forced to take further action in the New Year to shore up inflation and growth.
The core consumer-price index, which excludes fresh food, was up 0.1% from a year earlier in November, the government said, as a weaker yen pushed up the prices of imported food and appliances.
It was the first rise in five months but still far from the Bank of Japan ’s 2% inflation target. Household spending fell 2.9% in November, the third consecutive month of decline.
Mr. Abe’s supporters cite progress on several fronts since he took office three years ago. Corporate profits are up sharply, lifting stock prices. And demand for workers is strong. In November, the jobs-to-applicants ratio rose to 1.25 from 1.24 the previous month, showing there were 125 jobs for every 100 job seekers.
The worker shortage is beginning to lift wages, especially at large companies. A survey by the business group Keidanren found that winter bonuses at large companies increased 3.8% this year.
But the economy has yet to enter a virtuous circle, where rising wages encourage consumers to spend, leading to more growth and further wage increases.
“The economy remains vulnerable to downside risks such as weak consumer spending,” said Yuki Endo, an economist at Hamagin Research Institute.
He said the Bank of Japan, which is already buying Japanese government bonds at a pace of ¥80 trillion ($664 billion) a year to pump cash into the economy, was likely to ease monetary policy further next year. Mr. Endo suggested April as the likely timing after the results of annual wage negotiations become clear.
Makoto Nakagawa of the Ministry of Finance said the trend of higher real wages that has emerged in the past few months would likely strengthen next year, raising consumption. He said it was likely the “virtuous cycle would be more visible in the coming year.”
Bank of Japan Gov. Haruhiko Kuroda and Mr. Abe have also upped pressure on companies in recent months to give employees higher wages and invest more in growth. Both have expressed frustration that companies are sitting on trillions of dollars in cash.
The BOJ maintains that inflation in Japan is on track to achieve the 2% target and that the lack of significant overall price rises is caused by lower energy prices. Stripping out energy and food prices, Japan’s consumer prices rose 0.9% in November from a year earlier.
Mr. Kuroda said Thursday that the central bank had “unwavering determination to do whatever it takes to overcome deflation and achieve the price stability target of 2%.” The BOJ took steps to fine-tune its stimulus program earlier this month.
Some economists are skeptical that Japanese companies will significantly increase prices, even if a weaker yen has increased the cost of durable goods such as televisions made overseas.
“Distributors are trying to pass on the increased cost of imports to consumers, but doing so very carefully, so as not to drive away customers,” said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.
Mr. Tonouchi added that the weakness in household spending in November raised the possibility of a contraction in Japan’s gross domestic product in the October-December quarter. Household spending accounts for nearly 60% of GDP. Japan’s economy shrank in the April-June quarter before growing slightly in the following quarter.
“With crude oil prices in a fresh downtrend, there is a risk of downward pressure on prices strengthening once again,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. “It is difficult to envisage the kind of upward trajectory for prices as hoped for by the Bank of Japan.”