Japan’s Nikkei 225 closed down 1.18% to 6,360.71 points after official data showed core consumer prices in the nation fell for a fifth consecutive month in July.
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The gloomy data reinforces a dominant market view that premier Shinzo Abe’s stimulus program have failed to dislodge the deflationary mindset prevailing among businesses and consumers. It exceeded a median forecast for a 0.4 percent decline and June’s 0.4 percent drop.
The government’s figure strips out energy and all food prices.
A strong yen also pushed down import costs, offering few justifications for retailers to raise prices of their goods. Healthcare and consumer cyclicals led the decline, down 1.7% and 1.6% respectively.
Suggesting that deflationary pressures will persist for sometime yet, core inflation in Tokyo – released one month ahead of the national figure – fell by 0.4% from a year earlier, the same level seen in July and bucking expectations for an increase to -0.3%. “That’s my stance on buying clothes too”, she said.
Economists said the weak inflation data adds to the case for further stimulus measures by the Bank of Japan, which has said it would not rule out another rate cut.
Many financial specialists say that interest rates have already been warped due to the BOJ’s domination of the bond market after four years of unbridled fiscal stimulus.”In the short-term, of course, numerous listed equities on the Tokyo exchange will look much more attractive and demand will heighten for those stocks”, said Director of Asset Allocation at Orix Capital Trading, Steve Rogers in a phone interview.”The question however is, will these kinds of headline grabbing fiscal gimmicks help the economy in the long run?”
BoJ Governor Haruhiko Kuroda is speaking at the Jackson Hole conference on Saturday as part of the Overview Panel, with the market hoping he’ll hint on monetary policy.
Japan’s economic growth ground to a halt in April-June and analysts expect any rebound in the current quarter to be modest as weak global growth and the yen’s 20 percent rise against the dollar so far this year hurt exports and capital expenditure.
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But sluggish exports have also been weighing on the economy, underscoring withdrawing overseas demand and the negative impact of the yen’s ongoing appreciation, while consumer spending, which accounts for 60 percent of total gross domestic product has also been largely flat of late.
