Japan inflation ebbs in May, jobless rate flat

Staff Writer
Columbus CEO

TOKYO (AP) — The state of Japan's economic recovery remains murky, with inflation still nearly flat in May despite unprecedented monetary stimulus, though joblessness was flat at 3.3 percent and household spending rose for the first time in over a year.

The data released Friday followed relatively weak indicators recently that have showed softening demand and slowing industrial production. Economists say the world's third-largest economy slowed or possibly contracted in the April-June quarter.

Japan's central bank is pumping unprecedented sums of cash into the economy, seeking to push prices higher and spur inflation. The ultra-easy monetary policy is the main weapon in Prime Minister Shinzo Abe's economic program, dubbed Abenomics, and is meant to convince companies and families to step up spending to avoid having to pay more as prices rise.

However, lower energy costs due to the fall in oil prices over the past year are slowing progress toward the Bank of Japan's 2 percent inflation goal. Officials say they expect prices to begin rising once lagging declines in gas prices stabilize in coming months.

But the trend toward lower energy prices is helping businesses and consumers, who increased spending by 4.8 percent in May, the first such jump since March 2014. Electricity rates, which are linked to trends in oil prices, are due to fall 3 percent in July.

An April 2014 jump in the sales tax to 8 percent from 5 percent pushed the economy into recession as purchases that had been moved forward to beat the tax hike fell off.

Household spending is only one indicator and is notoriously volatile, Masamichi Adachi of JP Morgan said in a commentary. Since semi-annual bonuses are paid in June, spending will likely rise during the summer, he said.

But the recovery in confidence is still weaker than expected, and he has cut his forecast for second quarter growth to zero percent from 1.5 percent, he said.

Overall, Japan has yet to vanquish the deflationary pressures that have discouraged many companies from making long-term investments and hiring, said Marcel Thieliant of Capital Economics.

"The big picture remains that there is still substantial spare capacity in the economy which is dragging down prices," he said.