Japan inflation lowest since war on falling prices began

Japan's inflation rate has fallen to its lowest level since just after Tokyo launched a high-profile offensive aimed at conquering years of falling prices and tepid growth, data showed Friday.

The disappointing figures -- weighed by weak consumer spending and falling energy prices -- challenge Bank of Japan chief Haruhiko Kuroda's claim that inflation is on an uptrend.

They may also aggravate doubts over Tokyo's wider bid to kickstart the world's number three economy and reverse years of stagnant or falling prices which were blamed for holding back growth and denting firms' expansion plans.

Sustained inflation is a key measure of Prime Minister Shinzo Abe's three-pronged growth plan, dubbed Abenomics, to resuscitate Japan's long-suffering economy.

The government data on Friday showed that Japan's inflation rate last month came in at 2.2 percent, down from 2.5 percent in December.

But stripping out the effect of a sales tax hike last year, it rose just 0.2 percent from a year earlier, the lowest since a zero percent rate in May 2013, and well short of the Bank of Japan's much-touted 2.0 percent inflation goal which it hopes to reach during the fiscal year starting in April 2015.

Prices had been on the rise, largely due to Japan having to import pricey fossil fuels to plug an energy gap left by the shutdown of atomic reactors in the wake of the 2011 Fukushima accident.

But plunging oil prices have dealt another blow to the BoJ's inflation goals, and doubts are growing over the ambitious target -- even among BoJ members.

Minutes from the central bank's January meeting showed that three of nine policy board members were doubtful about the feasibility of reaching the price target.

Despite insisting that the BoJ was marching toward its inflation goals, Kuroda has also said the BoJ would further expand its unprecedented monetary easing campaign -- launched in April 2013 -- if necessary.

"Currently, 80 percent of private-sector economists expect additional easing by the end of the year," SMBC Nikko Securities said in a note.

"We expect additional easing will come in late April."

- Sluggish spending -

The inflation data were among a mixed bag of figures that also showed a better-than-expected expansion in factory activity, but analysts warned that the uptick was likely to fizzle in the coming months.

Separately, the internal affairs ministry said spending by Japanese households fell a greater-than-expected 5.1 percent from a year ago, as the sales tax hike to 8.0 percent from 5.0 percent weighed on shopping nationwide.

The jobless rate last month ticked up to 3.6 percent from 3.4 percent in December.

Following the levy rise in April, Japan's economy fell into recession, prompting Abe to put off a second sales tax hike this year, which was aimed at taming Japan's enormous national debt.

Japan limped out of recession in the last quarter of 2014, according to earlier data, with a weak 0.6 percent expansion between October and December. But over the full year the preliminary data showed zero growth, compared with 1.6 percent in 2013.

The recovery in factory output has been led by stronger exports, with Japan's industrial production in January expanding by a better-than-expected 4.0 percent on-month, the second consecutive month of increase and beating a revised 0.8 percent rise in December.

Still, the upbeat figure did not warrant much optimism, said Marcel Thieliant from Capital Economics.

"While industrial production surged in January, firms are predicting a renewed decline in coming months as consumer spending remains sluggish," he said.