Japan's slowing inflation leaves BOJ fighting tough price battle
* Feb nationwide core CPI up 0.7 pct yr/yr vs f'cast +0.8
* Core-core CPI rises 0.4 pct yr/yr in February
* Soft inflation to keep BOJ under pressure to keep stimulus
(Adds JGB market moves, details on deflation mindset)
By Leika Kihara
TOKYO, March 22 (Reuters) - Japan's annual core consumer
inflation slowed in February as gasoline costs fell for the
first time in more than two years, keeping the central bank
under pressure to maintain, or even ramp up, stimulus to
accelerate price growth to its 2 percent target.
The data adds to growing signs that Sino-U.S. trade tensions
and slowing global demand are hurting Japan's economic expansion
and business sentiment.
If the weakness persists, the Bank of Japan (BOJ) may be
forced to cut its inflation forecasts again at next month's rate
review, analysts say, though policymakers are wary of expanding
an already massive stimulus programme any time soon.
The nationwide core consumer price index (CPI), which
includes oil products but excludes volatile fresh food costs,
rose 0.7 percent in February from a year earlier, government
data showed on Friday, falling short of a median market forecast
for a 0.8 percent gain.
The slowdown from January's 0.8 percent increase was due
largely to a 1.3 percent drop in gasoline prices, which was the
first year-on-year decline since November 2016, the data showed.
"As overseas economies begin to weaken, it's hard to project
inflation hitting the BOJ's 2 percent target," said Takeshi
Minami, chief economist at Norinchukin Research Institute.
"The BOJ is likely to maintain its current policy at next
month's rate review," though it could ponder additional easing
at some point given the recent weak data, he said.
An index the BOJ focuses on - the so-called core-core CPI
that strips away the effect of both volatile food and energy
costs - rose 0.4 percent in February, unchanged from the
previous month's gain.
The costs of labour and shipping are pushing up prices of
food items such as soft drinks, yoghurt, ramen noodles and ice
cream. However, frugal consumers are resisting price hikes,
capping retail prices and underscoring an entrenched
deflationary mindset that Japan has been trying to overcome for
Companies like Coca-Cola Bottlers Japan Holdings Inc
, Suntory Beverage & Food and potato chips
maker Calbee Inc, have warned of falls in profits as
the planned price hikes fail to cover rising upstream costs.
BOJ IN A BIND
The BOJ faces a dilemma. Years of heavy money printing have
dried up market liquidity and hurt commercial banks' profits,
stoking concerns over the rising risks of prolonged easing.
And yet, subdued inflation has left the BOJ well behind its
U.S. and European counterparts in dialling back crisis-mode
policies, and with a dearth of ammunition to battle an abrupt
yen spike that could derail an export-driven economic recovery.
Further complicating the BOJ's struggle with low inflation,
falling global bond yields in the wake of the U.S Federal
Reserve's move to pause interest rate hikes for the rest of this
year, have sent the JGB yield to 2-1/2 year lows.
The benchmark 10-year government bond yield fell below minus
0.050 percent to the lowest level since November 2016, making it
more difficult for the central bank to ease policy further given
the side-effects on financial institutions and market functions.
BOJ Governor Haruhiko Kuroda has stressed the central bank
will no longer ease policy just to fire up inflation, and focus
instead on the momentum generated by the economy to push up
The central bank earlier this month maintained its view that
Japan's economy is expanding moderately, signalling that it was
in no hurry to expand stimulus.
Yet that view is becoming increasingly tenuous. In March,
the government downgraded its economic assessment for the first
time in three years, nodding to growing signs of weakness in
exports and output.
(Reporting by Leika Kihara
Editing by Shri Navaratnam)
First Published: 2019-03-22 01:32:18
Updated 2019-03-22 05:15:54
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