Japan Consumer Prices Drop – A Threat To Bank Of Japan’s Price Stability Target

January 25, 2013 in Japan

Jpanese YenToday’s Consumer price index data released by Statistics Bureau, Tokyo showed a drop in the prices again in Japan during December 2012. The national consumer price index dropped by -1.0% against the same during December 2011. November had seen an year on year change of -2.0% and the market consensus were for a same drop during December as compared to the corresponding month of 2011. Though the drop of -1.0% was better than the previous month and also the market expectations but this was the seventh time during past 8 months when Japan saw the prices drop.

Today’s CPI reports of year on year change

Today’s CPI Releases

Change

Consensus

Previous Month

National Consumer Price Index (YoY) -December

-0.1%

-0.2%

-0.2%

National CPI Ex Food, Energy (YoY) -December

-0.6%

-0.5%

-0.6%

National CPI Ex-Fresh Food (YoY) -December

-0.2%

-0.2%

-0.1%

Tokyo Consumer Price Index (YoY)  January -preliminary data

-0.6%

-0.6%

Tokyo CPI ex Food, Energy (YoY)  January -preliminary data

-0.9%

-0.5%

Tokyo CPI ex Fresh Food (YoY) January -preliminary data

-0.5%

-0.5%

-0.6%

Drop in prices questions the practicality of Bank of Japan’s plans to control the deflation

On January 22nd the Bank of Japan had kept the interest rates same at 0.1% while the policy statement had mentioned that in order to achieve better stability in the prices BoJ has setup an inflation target of 2% on year on year basis. In the same policy meeting BoJ had announced an open-ended asset purchasing method In order to pursue aggressive and targeted monetary easing.

The continuous drop in the consumer prices put a question mark on the inflation target set by BoJ. Unless and until BoJ takes fast steps for an aggressive monetary easing, the targets seem to be farfetched.  On the other hand any drastic steps to weaken the Japanese yen may result in a currency war if other central banks start taking steps to counteract Japan’s initiatives.

Japanese yen weakened against the U.S. dollar further today and USD/JPY went as high as 90.68 during the Asian trading session before the pair went into a sideways mode.

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