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Economy

Japan consumer prices fell by most in four years in August

Travel subsidy program amid coronavirus pandemic pushes down accommodation costs

Women stroll along Nakamise Street, a popular sightseeing spot in the Asakusa area of Tokyo, in July.   © Reuters

TOKYO (Reuters) -- Japan's core consumer prices fell at their fastest pace in almost four years in August, dragged mostly by government-sponsored discounts for domestic travel aimed at supporting the battered tourism sector.

The weak consumer price data comes after Bank of Japan Governor Haruhiko Kuroda said on Thursday it would monitor not just price trends but jobs growth in guiding policy, signalling a readiness to ramp up stimulus if job losses heighten the risk of deflation.

Japan's new premier Yoshihide Suga on Wednesday pledged to contain COVID-19 and retain his former boss's "Abenomics" growth policies while pushing reforms such as deregulation and digitalisation.

The core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, fell 0.4% in August from a year earlier, government data showed on Friday.

That compared with the median market forecast for a 0.4% decline and a flat reading in July and matched the level seen in November in 2016.

The main factor for the fall in the core CPI was a price decline in accommodation and hotels after the government launched subsidies for national travel discounts from late July to revive tourism.

Prices of accommodation fell 32.0% in August from a year earlier, the index showed.

"Downward pressure on consumer prices will likely continue and the core CPI index could fall to around 1.0% year-on-year later this year," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

He said the travel campaign will continue to weigh on accommodation while the boost to prices from a sales tax hike implemented last October will disappear later this year.

Meanwhile, downward pressure on prices is broadening from the hit to demand caused by the coronavirus.

The so-called core-core price index, which excludes food and energy prices and is closely tracked by the central bank as a narrower gauge of inflation, fell 0.1% in August, the first fall since March 2017. In July, the index gained 0.4%.

"There is also a possibility that weak demand triggered by the coronavirus outbreak could push down consumer prices going ahead, though we haven't seen significant impact on consumer prices so far," Shinke said.

The economy shrank an annualised 28.1% in April-June, its biggest postwar contraction.

Analysts see the reopening of businesses after a nationwide shutdown supporting the economy, but firms and consumers remain cautious about the coronavirus outbreak and the pace of recovery may be limited.

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