Japan’s consumer prices have dropped for the fifth month in a row in July dealing another blow to prime minister Shinzo Abe’s attempts to fight deflation and revive the world’s third-biggest economy.
Figures released on Friday showed a 0.5% drop in July – worse than a 0.4% fall in June – and marks the biggest annual fall in consumer prices for more than three years.
The disappointing data comes as Japan looks to the Federal Reserve chair, Janet Yellen, for signs that the America is preparing to increase interest rates amid more upbeat assessments for the US economy.
The monthly decline in Japan’s consumer prices was the biggest fall since March 2013, a month before the Bank of Japan (BoJ) began its massive monetary easing programme in an attempt to reach Abe’s so far elusive 2% inflation target.
Any indication from the Fed that it is preparing to raise rates could push the yen down and bring relief to Japanese exporters, whose overseas profits have been ravaged by the currency’s recent rise against the greenback and other major currencies.
The dollar stayed flat in the mid-100 yen range on Friday morning, having strengthened significantly against the Japanese currency after Abe was elected in late 2012 on a promise to rein in the yen and boost export earnings.
Comments by some Fed policymakers, including its vice chair, Stanley Fischer, have raised expectations that Yellen will signal a readiness to raise rates gradually in the near future when she addresses a meeting of the world’s central banks in Jackson Hole, Wyoming, later on Friday.
Some analysts, however, believe Yellen will strike a more cautious note, saying only that rate hikes are possible.
“The anticipation is a bit too much. She is one of the more pragmatic and balanced speakers,” said Jennifer Vail, head of fixed income research at US Bank Wealth Management in Portland, Oregon. “I think she will leave the door open for a rate hike sometime this year, but I don’t see the Fed actually moving until December.”