Japan’s weak inflation likely to prod BoJ to ease soon

Consumer prices in Japan remained weak during the month of May, increasing the chances of an easing by the Bank of Japan in its next monetary policy meeting. The central bank’s 2 percent targeted rate of inflation seems difficult to reach, which is likely to propel the BoJ all the more to slash interest rates soon.

Core consumer prices, which exclude fresh food, fell 0.4 percent from a year earlier in May, remaining largely in line with expectations. It was the biggest drop since April 2013, when the BoJ, under Governor Haruhiko Kuroda kicked off a large program of monetary easing, data released by the Statistics Bureau showed Friday.

According to another release Friday, household spending fell for the third month in a row in May. Meanwhile, a central bank business survey showed sentiment at big manufacturers was unchanged, but Japanese bank sentiment hit its lowest point in three-and-half years.

Moreover, Friday’s data came ahead of the parliamentary elections, due next week, seen as a referendum on Prime Minister Shinzo Abe’s faltering plan, dubbed as Abenomics to help kick start the dwindling economy. Further, the disappointing data raises speculations in the market whether policymakers will unleash more stimuli to prop up the ailing economy.

"The economy continues to stagnate. Policy effects are running out of steam," said Yuichi Kodama, Chief Economist, Meiji Yasuda Life Insurance.