Japan’s Core CPI Weakens for Second Consecutive Month

The risks of Japan slipping into deflation continue to increase with core consumer prices weakening for the second consecutive month. According to data released by the government, Japan’s core CPI fell by 0.2% YoY during May, a worse reading than the 0.1% decline previously forecast by economists and in line with April’s reading.

Meanwhile, the core core CPI – which excludes volatile food and energy prices, rose by 0.4% in May, following a 0.2% rise in the previous month. Even though domestic demand for essential goods continues to rise, the possibility of deflation remains high as consumers reduce discretionary spending and cut down travel plans in the wake of the ongoing pandemic.

In response to the current crisis, the BOJ recently opted to hold its monetary policy steady but committed to increase its monetary easing efforts to prop up the economy. Despite its efforts, governor Kuroda admitted that inflation is likely to remain weak in the coming years.

The BOJ remains optimistic that the Japanese economy could show signs of recovery by the second half of the year. So far, the government has announced fiscal stimulus measures worth $2.2 trillion to offset the economic damage from the pandemic.