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UPDATE 1-Japan deflation deepens as wholesale prices tumble
Fri, 10th Jul 2009 02:15
By Tetsushi Kajimoto
TOKYO, July 10 (Reuters) - Japanese wholesale prices fell 6.6
percent in the year to June, the biggest annual drop on record,
as the world's No.2 economy slides deeper into its second spell
of deflation this decade.
Declines in oil and raw materials costs weighed on wholesale
prices, but falling final goods prices showed weak domestic
demand was also to blame as companies curb capital spending and
slash jobs following a record contraction in the first quarter.
'The slide in wholesale prices is highly likely to widen in
July, August and September, exceeding 7 percent down the road.
Today's data would help the Bank of Japan reinforce its cautious
stance on the economy,' said Tetsuro Sawano, senior fixed income
strategist at Mitsubishi UFJ Securities.
Wholesale inflation has evaporated after hitting a 27-year
peak last August, as the global financial crisis sent commodity
prices tumbling.
The fall in the corporate goods price index was bigger than a
median market forecast for a 6.4 percent drop and followed a
revised 5.5 percent slide in the year to May, marking the sixth
straight month of annual declines.
Reflecting weak demand at home, domestic final goods prices
dropped 2.6 percent in the year to June, the biggest decline
since 2002, pointing to further pressure on consumer prices,
which fell a record 1.1 percent in May from a year earlier.
Wholesale prices have tended to move more sharply than
consumer prices, which fell 1.1 percent in the year to May.
Consumer price data for June will come out at the end of this
month.
For a graphic for Japan's wholsesale and consumer prices,
click: http://graphics.thomsonreuters.com/079/JP_WPI0709.jpg
Underlining the risk of deepening deflation and weakness in
final demand, the government estimates that supply capacity now
exceeds actual demand by 45 trillion yen ($484 billion) a year.
The Bank of Japan and private-sector economists are
forecasting at least two years of deflation.
While opinions are divided about whether this will be mild or
a more serious slide that prompts consumers to curb spending, the
BOJ says Japan is not facing such a deflationary spiral.
The central bank policy board meets next Monday and Tuesday.
The BOJ has cut interest rates twice to 0.1 percent in the
wake of the global financial crisis last year and taken steps
like buying commercial paper and corporate bonds and providing
low-interest funds to banks against corporate debt as collateral.
As credit conditions ease, debate is likely to heat up within
the BOJ over whether to extend these corporate finance support
steps due to expire in September, while it tries to avoid sending
the wrong signal to an economy sinking deeper into deflation.
Japan's gross domestic product will grow a modest 0.4 percent
in April-June, after a record 3.8 percent decline in the first
quarter, according to a Reuters poll, as companies slowly build
output and government stimulus trickles down.
But analysts expect any recovery in Japan to be fragile as
many companies slash jobs and cut back on capital spending on
weak domestic demand.
($1=93.00 Yen)
(Editing by Hugh Lawson)
((tetsushi.kajimoto@thomsonreuters.com; +81 3 6441-1829; Reuters
Messaging: tetsushi.kajimoto.reuters.com@reuters.net))
Keywords: JAPAN ECONOMY/
(If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com)
COPYRIGHT
Copyright Thomson Reuters 2009. All rights reserved.
The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
TOKYO, July 10 (Reuters) - Japanese wholesale prices fell 6.6
percent in the year to June, the biggest annual drop on record,
as the world's No.2 economy slides deeper into its second spell
of deflation this decade.
Declines in oil and raw materials costs weighed on wholesale
prices, but falling final goods prices showed weak domestic
demand was also to blame as companies curb capital spending and
slash jobs following a record contraction in the first quarter.
'The slide in wholesale prices is highly likely to widen in
July, August and September, exceeding 7 percent down the road.
Today's data would help the Bank of Japan reinforce its cautious
stance on the economy,' said Tetsuro Sawano, senior fixed income
strategist at Mitsubishi UFJ Securities.
Wholesale inflation has evaporated after hitting a 27-year
peak last August, as the global financial crisis sent commodity
prices tumbling.
The fall in the corporate goods price index was bigger than a
median market forecast for a 6.4 percent drop and followed a
revised 5.5 percent slide in the year to May, marking the sixth
straight month of annual declines.
Reflecting weak demand at home, domestic final goods prices
dropped 2.6 percent in the year to June, the biggest decline
since 2002, pointing to further pressure on consumer prices,
which fell a record 1.1 percent in May from a year earlier.
Wholesale prices have tended to move more sharply than
consumer prices, which fell 1.1 percent in the year to May.
Consumer price data for June will come out at the end of this
month.
For a graphic for Japan's wholsesale and consumer prices,
click: http://graphics.thomsonreuters.com/079/JP_WPI0709.jpg
Underlining the risk of deepening deflation and weakness in
final demand, the government estimates that supply capacity now
exceeds actual demand by 45 trillion yen ($484 billion) a year.
The Bank of Japan and private-sector economists are
forecasting at least two years of deflation.
While opinions are divided about whether this will be mild or
a more serious slide that prompts consumers to curb spending, the
BOJ says Japan is not facing such a deflationary spiral.
The central bank policy board meets next Monday and Tuesday.
The BOJ has cut interest rates twice to 0.1 percent in the
wake of the global financial crisis last year and taken steps
like buying commercial paper and corporate bonds and providing
low-interest funds to banks against corporate debt as collateral.
As credit conditions ease, debate is likely to heat up within
the BOJ over whether to extend these corporate finance support
steps due to expire in September, while it tries to avoid sending
the wrong signal to an economy sinking deeper into deflation.
Japan's gross domestic product will grow a modest 0.4 percent
in April-June, after a record 3.8 percent decline in the first
quarter, according to a Reuters poll, as companies slowly build
output and government stimulus trickles down.
But analysts expect any recovery in Japan to be fragile as
many companies slash jobs and cut back on capital spending on
weak domestic demand.
($1=93.00 Yen)
(Editing by Hugh Lawson)
((tetsushi.kajimoto@thomsonreuters.com; +81 3 6441-1829; Reuters
Messaging: tetsushi.kajimoto.reuters.com@reuters.net))
Keywords: JAPAN ECONOMY/
(If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com)
COPYRIGHT
Copyright Thomson Reuters 2009. All rights reserved.
The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
