Japan Consumer Prices July 2007

Japan remained mired in deflation for the sixth straight month in July, according to figures published by the statistics Office today that showed a 0.1 per cent fall in core consumer prices (excluding fresh food) over July 2006. The news obviously will make it even harder for a Bank of Japan which was already struggling to find arguments to justify a raise in interest rates at its September monetary policy meeting. Indeed the odds on a rate rise this year (or even this business cycle) now seem to be reducing rapidly.

Here is the chart of the index itself:



And here are the year on year percentage changes for the three principal indexes. As can be seen we are back in deflation across the board since January.



Comment

Only a few months ago, an autumn rate rise had become the consensus view among Japan economists. But since then, turmoil in global credit markets and a fall in Japanese share prices have generated a wait-and-see attitude among BoJ board members, making them reluctant to raise the benchmark rate above its current 0.5 per cent level. Thursday’s weak retail sales figures, and Friday’s evidence of continuing deflation, make a rate rise in September even less likely.
Financial Times

The reports bolstered speculation the Bank of Japan will delay raising interest rates until it can gauge the effects of the U.S. housing recession on growth in the nation's biggest export market. Expectations of a rate increase have fallen since losses on U.S. subprime mortgages caused corporate credit costs to jump, global stocks to plummet and the yen to surge.
Bloomberg