Japan's Core Consumer Prices Rise Most in Eight Years
June 30 (Bloomberg) -- Japan's consumer prices rose at the fastest pace in eight years, adding to evidence that deflation in the world's second-largest economy is beaten and supporting the Bank of Japan's case for raising interest rates from near zero.
Core consumer prices, which exclude fresh food, climbed 0.6 percent in May from a year earlier, gaining for a seventh month, the statistics bureau said today in Tokyo. The result was in line with economists' forecasts.
Bank of Japan Governor Toshihiko Fukui this month said prolonging zero-percent interest rates may prompt excessive investment by companies, fueling inflation. Policy makers said they'll judge when to raise rates based on prices and the economy.
``Everyone knows rates are going to go up'' some time in the third quarter, said Graham Davis, director of the Economist Corporate Network in Tokyo. ``It's the pace and the direction of rate changes that's most important.''
Japan's unemployment rate fell to a seven-year low of 4 percent, a separate statistics bureau report showed today. The job-to-applicant ratio, which shows how many jobs are available to a job seeker, climbed to 1.07 in May, the highest since July 1992, the labor ministry said today.
The yen traded at 115.14 per dollar at 9:04 a.m. in Tokyo compared with 115.15 before the reports were published.
(My comment: when I said earlier this week we could wake up to a 112.00 JPY this coming Monday morning, I was being a tad aggressive. But who knows? I still think the JPY now is a beautiful long trade coming into view)
`Overheating' Concern
Japan's biggest companies will say they plan to increase spending by 9 percent this year, three times the rate they forecast in March, the Bank of Japan's quarterly Tankan business confidence survey will probably show on July 3, according to the median forecast of 24 economists surveyed by Bloomberg News.
Tomoko Fujii, senior currency strategist at Bank of America in Tokyo, said the Tankan data ``will probably fuel concerns about overheating of companies' investment.'' She expects the Tankan will show companies plan to boost investment by 8 percent.
``The chance of a July rate increase is high,'' Fujii said.
Governor Fukui said on June 20 that the central bank needs to adjust interest rates from near zero ``without delay, little by little'' as the economy keeps expanding and prices continue to rise. Two days later, policy board member Kiyohiko Nishimura said keeping zero rates for a prolonged period may cause ``useless, excessive investment'' by companies and result in ``considerable trouble'' for the economy in the long run.
Tissue Paper
Japanese companies have started to pass on costs to consumers as rising oil and raw material prices are squeezing profits and economic expansion and rising wages make it easier for consumers to accept higher prices.
``Consumer prices are gaining momentum from improving employment and rising oil costs, and price gains will accelerate in the coming months,'' said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo. ``The Bank of Japan seems to be considering a July rate increase, and that's why policy makers have signaled the need for higher rates in recent weeks.''
Nippon Paper Group Inc. last month said it will raise its wholesale prices of tissues, toilet paper and paper towels by more than 25 percent, starting with shipments in July, to reflect higher costs of oil and pulp. Oji Paper Co. and Daio Paper Corp. said this month they will follow suit with price increases.
Fukui said on June 20 that the number of items showing price increases ``is gradually increasing.''
The price of Dubai crude oil, a benchmark for Asian refiners, has risen about 25 percent this year. Japan's producer prices, the amounts companies pay for energy and raw materials, climbed 3.3 percent in May from a year ago, the fastest in 25 years.
Murakami Investment
``The process of companies passing costs will spread steadily as demand in the economy keeps expanding,'' said Kazuhiro Oshima, an economist at Mitsubishi Research Institute. ``Also, there is little prospect that crude oil prices will drop anytime soon.''
Core consumer prices will rise 0.6 percent this fiscal year and their gains will accelerate to 0.8 percent in the year ending March 2008, the Bank of Japan forecast in its semi-annual report released on April 28.
The recent controversy about Fukui's investment in a fund founded by Yoshiaki Murakami, who was last week indicted for insider trading, won't dent the bank's case for raising rates, economists said.
``It seems highly likely that a Fukui-led BOJ will fulfill its wish of removing the zero-interest-rate policy in July or August,'' said Takehiro Sato, an economist at Morgan Stanley Japan Ltd. Economic data will be the ``clincher'' for the timing of a rate increase and the bank won't be swayed by the investment issue, he said.
`Sooner Rather Than Later'
Fukui has been under pressure to quit since June 13, when he acknowledged investing in the fund in 1999 before becoming central bank governor.
The controversy over the governor's investment in the fund may even prompt the central bank to raise rates ``sooner rather than later,'' said Tetsufumi Yamakawa, chief economist at Goldman Sachs Japan Ltd. and a former central bank official. Yamakawa last week changed his forecast of a rate increase to July from August.
If the bank postpones a rate increase after seeing a stable gain in May core prices and upbeat business confidence in its Tankan survey, ``this could lead to speculation in the market that the BOJ is bowing to political pressure and has lost its independence,'' Yamakawa said.
Core prices in Tokyo, home to one in 10 Japanese and a harbinger of Japan's nationwide consumer prices, gained 0.3 percent in June, compared with a 0.4 percent gain of May, the statistics bureau said. |
