Japan's Consumer Price Index (CPI) likely hit an 18-month low in December, further reinforcing the steady stance of the Bank of Japan (BOJ) on its monetary policy, according to a recent poll conducted by Reuters. The anticipated decline in inflation aligns with a broader trend of subdued price growth in the country, which continues to pose challenges to policymakers.
Economists predict that Japan's CPI, which measures the average price change of goods and services purchased by households, likely fell by 0.6% in December from a year earlier. This would mark the largest decline since May 2019. The projected drop is attributed to the prolonged impact of the COVID-19 pandemic on consumer spending and demand.
The poll results bolster the BOJ's view that inflation remains a persistent challenge in Japan. The central bank has struggled for years to achieve its 2% inflation target, despite implementing various unconventional measures such as ultra-low interest rates and massive asset purchases.
The prolonged nature of the pandemic and subsequent containment measures have hampered Japan's economic recovery and weighed on consumer spending. With many businesses operating at limited capacity and unemployment levels elevated, the Japanese economy has struggled to regain its pre-pandemic momentum.
While some economists expect inflation to rebound later in 2021 as the global economy recovers, the majority anticipate that it will remain sluggish, keeping the BOJ's radical stimulus measures in place for the foreseeable future. The bank has recently signaled that it will maintain its accommodative monetary policy to support the country's economic recovery and strive for sustained price stability.
The low inflation environment poses challenges for Japan's economy on multiple fronts. It hampers consumer sentiment and spending, as individuals anticipate further price declines and delays in making purchases. Additionally, it limits revenue growth for businesses, reducing their ability to invest and create jobs. Overall, it undermines the effectiveness of monetary policy and stalls efforts to achieve sustainable economic growth.
The BOJ has been exploring new strategies to revitalize the Japanese economy. These include focusing on creating a favorable environment for businesses and promoting structural reforms to enhance productivity and innovation. However, the road to achieving sustained inflation and robust economic growth remains challenging.
In conclusion, Japan's CPI is expected to have hit an 18-month low in December, reflecting the ongoing struggles of the country's economy in the face of the COVID-19 pandemic. The forecasted decline supports the BOJ's view that inflation remains subdued, necessitating the continuation of its accommodative monetary policy. It remains to be seen how Japan will navigate the subdued inflation environment and stimulate its economy for a sustained recovery.
