Japan’s Inflation Edges Higher But Remains Far From Target

(Bloomberg) -- Japanese inflation sped up in October but price rises are still less than half the central bank's target, despite the tightest labor market in decades.

Key Takeaways

In the almost five years since Shinzo Abe returned to power promising an end to Japan's deflationary malaise, the economy has returned to healthy growth but inflation has remained stubbornly below the target set by the Bank of Japan. One reason is that while the labor market is tighter than it has been in decades, that hasn't translated into a strong rise in wages, meaning households have kept a tight rein on their spending.

Economist Views

• Core CPI will “hit the 1 percent wall” as it's likely that the rise in energy prices will peak, said Hiroaki Muto, chief economist at Tokai Tokyo Research Center in Tokyo. “Consumer prices move in tandem with service costs, so unless those rise, it's difficult for prices to also increase.”
• “The working age population is declining while the economy is growing, so it's inevitable that the labor market is getting tighter. In areas such as health care, welfare and elderly care the jobs aren't being filled and the supply and demand gap is continuing to widen,” Muto said.
• “The U.S. economy is picking up, prompting Japanese companies to do capital investment that they'd been holding back on. That investment will continue to be strong until the first half of next year or so,” said Masaki Kuwahara, senior economist at Nomura Securities.

Other Details

• Overall, nationwide prices rose 0.2 percent in October (estimate +0.2 percent).
• Excluding fresh food and energy, prices gained 0.2 percent (estimate +0.2 percent).
• Capital spending minus software advanced 4.3 percent (forecast +3.1%).
• Corporate profits climbed 5.5 percent (forecast 18.4%).
• Company sales increased 4.8 percent.

--With assistance from Isaac Aquino

To contact the reporter on this story: Yuko Takeo in Tokyo at ytakeo2@bloomberg.net.

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, James Mayger, Henry Hoenig

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