Bloomberg, Jan 31, 2014
Japan’s inflation accelerated in December, industrial output gained and a measure of demand for workers strengthened, signaling gains for Prime Minister Shinzo Abe’s campaign to end two decades of stagnation.
Prices excluding fresh food increased 1.3 percent from a year earlier, the statistics bureau said today in Tokyo, above a median estimate of 1.2 percent in a Bloomberg survey of 32 economists. Industrial production rose 1.1 percent from the previous month, while the number of jobs for every seeker rose to 1.03, exceeding 1 for the first the time since October 2007.
The economy’s next tests are spring wage negotiations among major employers and workers, and an April sales-tax increase that threatens to hurt consumer spending. Without pay gains that compensate for inflation — so far driven by higher energy bills due to a weaker yen and Japan’s nuclear shutdown — households face falling purchasing power.
“Consumers will be hit in the pocket from rising prices and the upcoming sales-tax hike,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. “The onus is now on companies to convert their profits into wage increases and capital spending.”
Japanese stocks rose, with the Topix index trimming its largest monthly decline since May 2012, as the yen weakened against the dollar. The Topix was up 0.7 percent at 10:46 a.m. in Tokyo. The yen was down 0.1 percent at 102.80 per dollar, after touching a five-year low of 105.44 on Jan. 2.
The Bank of Japan’s record stimulus that Governor Haruhiko Kuroda began last April helped weaken the yen about 18 percent against the dollar last year, boosting fuel prices (JNCPIXFF) and stoking broader inflation toward the central bank’s 2 percent target.
Overall consumer prices rose 1.6 percent on year, with the cost of fresh food jumping 13.6 percent. Cabbages — a staple in the country’s diet — soared 91.7 percent. Electricity was up 8.2 percent.
Incomes haven’t kept up with inflation, squeezing the spending power of households. Wages excluding bonuses and overtime fell 0.6 percent in November from a year earlier, an 18th straight drop.
Abe has met five times since September with business and union leaders to persuade them to boost workers’ salaries at the annual wage talks in April. “We want to enter a virtuous cycle as quickly as possible,” where economic growth propels corporate profits, employers raise compensation and workers spend more, Abe said in a December interview.
Improvement in corporate profits and tightening in the labor market are boosting expectations that companies will boost wages, said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo.
“The spring labor negotiations will be crucial to judge whether this positive mechanism will continue,” said Shinke.
The core consumer price index has reached the BOJ’s median estimate of 1.3 percent for the fiscal year starting in April and is more than halfway to its 2 percent target adopted in January last year. When the BOJ unveiled stronger stimulus in April, the central bank said it aimed to hit the goal in about two years.
As the yen’s drop slows and prospects for wage increases remain unclear, policy makers may struggle later in 2014 to sustain increases in inflation, said Yoshimasa Maruyama, chief economist at Itochu Economic Research Institute. “It is still difficult to have a clear outlook for the 2 percent price target,” Maruyama said.
Nineteen of 36 economists surveyed by Bloomberg News this month see the BOJ expanding already unprecedented easing in the first half of this year.
The month-on-month trend in consumer prices is likely to remain “almost flat” over the next few months, Goldman Sachs Group Inc. said in a report this week.
Core inflation is likely to be around 1.25 percent “for some time,” the BOJ said in statement on Jan. 22, when it kept its policy unchanged. It stuck to its forecast that core consumer prices will rise 1.9 percent in the year starting April 2015, excluding the effect of sales-tax increases.
Companies across Japan have announced price rises ahead of the April increase in the sales tax to 8 percent from 5 percent.
Nippon Paper Industries Co. said this month it will raise the price of milk cartons as much as 15 percent from April due to higher prices of imported paper and a weak yen.
Tokyo Metro Co. said last month that it will boost base fares by up to 6 percent. Coca-Cola (Japan) Co. said this month that all its drink prices will change to reflect the increase in the sales tax, which will rise to 8 percent in April from 5 percent.