TOKYO (AFX) - Japanese consumer prices increased for the first time in two
years in November, raising hopes that deflation in the world's second-largest
economy may be coming to an end and that the central bank could exit its current
ultra-loose monetary policy early next year.
But government officials were quick to remind the Bank of Japan that
deflation is still very much around and it may be too soon for the central bank
to even consider a shift in policy.
The Ministry of Internal Affairs and Communications said Japan's core
consumer price index rose 0.1 pct in November from a year earlier, the first
annual increase since October 2003 and matching market expectations.
Core CPI excludes volatile prices of fresh and perishable food.
Izuru Kato, chief market economist at Totan Research Institute, said today's
data confirmed that Japan has beat deflation.
"And since Japan is no longer hostage to deflationary pressure, the BoJ is
most likely to go ahead with a policy shift around April," said Barclays Capital
strategist Masuhisa Kobayashi.
"I do not rule out the possibility of a policy shift as early as March" with
the core CPI likely to continue rising in December and early next year, said
Kobayashi.
But government officials argue that the period of price declines which had
been in place for over seven years may be far from over.
"We are not in a situation yet that allows us to change the view that mild
deflation is continuing," Chief Cabinet Secretary Shinzo Abe told a news
conference.
"It is important that [the government and the central bank] coordinate
policies to help the economy get out of deflation," he added.
While the nationwide core CPI for November rose, the Tokyo core CPI -- the
leading indicator for nationwide price trends and is released a month ahead --
dropped 0.2 pct in December from a year earlier, as market expected.
The central bank has committed itself to maintaining its present ultra-easy
monetary policy until the year-on-year change in the monthly core CPI moves
above zero for a prolonged period; that there is no sign of deflation
re-emerging and that the economy is growing steadily.
Finance Minister Sadakazu Tanigaki said those three conditions set by the
BoJ for exiting its current super-loose monetary policy have yet to be fully
met, Jiji Press reported.
For more than four years now, the BoJ has been flooding the financial system
with excess funds in a bid to fight deflation.
To stress its point that deflation persists, the ministry released for the
first time ever the core CPI computed using US standards, which excludes food
and energy cost, which showed that the economy was still mired in deflation.
Under the US-styled computation, Japan's core CPI fell 0.2 pct in November
from a year earlier, marking the 25th straight month of decline since the
ministry started to compile the data internally from November 2003.
But Tatsushi Shikano, economist at UFJ Research Institute, said even the US
standard based-CPI could show a year-on-year rise in the early part of the next
fiscal year that starts in April 2006.
