Rare rise for prices in Japan
Excluding volatile prices of fresh food, prices rose 0.4 per cent last month, the first increase since April last year.
Prime Minister Shinzo Abe has vowed to pull Japan out of 15 years of falling prices with active government spending, which he argues will boost the economy and lead to higher pay for workers.
The Bank of Japan, meanwhile, unleashed a huge monetary easing program in April and set a 2 per cent inflation target to turn around the economy.
Japan's economy expanded at an annualised rate of 4.1 per cent in the first quarter, and some Japanese firms have announced price increases as the yen weakened since late last year.
Much of the price increase can be attributed to surging energy costs in the wake of the Fukushima disaster.
The country turned to expensive fossil fuel imports after shutting its nuclear reactors. A weaker currency has pushed up the costs of those imports.
Frequently Asked Questions about this Article…
Japan's consumer prices rose in June for the first time in 14 months. Excluding volatile fresh food, prices were up 0.4% month-on-month — the first increase since April last year. For investors, this is a notable sign that the long period of falling prices (deflation) may be starting to reverse, which can influence interest rates, corporate profits and currency movements.
Prime Minister Shinzo Abe has pledged active government spending to pull Japan out of about 15 years of falling prices and to boost wages. The Bank of Japan launched a large monetary easing program in April and has set a 2% inflation target to try to turn the economy around.
The BOJ's 2% inflation target signals a policy push toward higher inflation after years of deflation. For markets, that can affect expectations for interest rates, bond yields and the yen. The BOJ's huge easing program is intended to stimulate the economy and push inflation toward that 2% goal.
Japan's economy expanded at an annualised rate of 4.1% in the first quarter. The simultaneous growth and the recent uptick in prices suggest policy measures and other factors are having an impact on the economy.
Much of the recent price increase can be attributed to surging energy costs following the Fukushima disaster. After shutting nuclear reactors, Japan increased imports of relatively expensive fossil fuels, and a weaker yen has further pushed up the cost of those imports.
As the yen weakened since late last year, some Japanese firms announced price increases. A weaker currency raises the cost of imported goods and energy, which in turn contributes to higher consumer prices and inflation pressure.
Investors should monitor key signals such as monthly consumer price readings (including core measures excluding fresh food), wage growth and company price-setting, BOJ policy announcements tied to its 2% target, movements in the yen, and energy import costs — all factors highlighted in the recent price rise.
Not necessarily. The June rise is an important early sign — the first in 14 months and a core increase of 0.4% excluding fresh food — but it doesn't by itself confirm a durable end to long-term deflation. Continued price increases, wage gains and sustained policy effects will be needed to determine a lasting shift.
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