Japan’s steady May inflation shows BOJ stimulus not moving price dial

By Tetsushi Kajimoto

TOKYO (Reuters) – Japan’s core consumer inflation held steady in May from the previous month, yet again highlighting the challenge facing the central bank as over five years of massive stimulus has failed to push prices close to its 2 percent goal.

The subdued inflation is also another reason why the Bank of Japan is widely expected to take some time before exiting its ultra-easy money policy, even as the Federal Reserve and the European Central Bank are far down the road in rolling back crisis-era policies.

The core consumer price index, which includes oil products but excludes volatile fresh food prices, rose 0.7 percent year-on-year in May, matching economists’ median estimate, Ministry of Internal Affairs and Communications data showed on Friday.

The data came after the central bank last Friday cut its inflation assessment, meaning the BOJ will be in no hurry to begin tapering its massive stimulus.

“The Bank of Japan has had little success in lifting inflation expectations among households and firms,” said Marcel Thieliant, senior Japan economist at Capital Economics.

“The upshot is that monetary policy tightening remains a long way off.”

The BOJ’s nine-member board is expected to scrutinize why Japanese inflation remains stubbornly subdued, when it meets next month to conduct a quarterly review of its long-term growth and price projections.

BOJ board member Yukitoshi Funo said on Thursday that he saw recent weak inflation as temporary, but added that structural factors such as the advance of Internet shopping and stiff competition among mass-merchandise retailers are weighing on prices.

Friday’s data showed the so-called core-core inflation index, which excludes fresh food and energy prices and is similar to the core index used in the United States, rose 0.3 percent in the year to May, slowing for two straight months.

Analysts see core consumer inflation moving sideways with a slowdown in price gains in electricity and household durable goods offsetting rises in the cost of gasoline.

The BOJ kept its short-term interest rate target at minus 0.1 percent last Friday and affirmed a pledge to guide 10-year government bond yields around zero percent.

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