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June 26, 2017

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Japan nears inflation goal as jobless rate falls

TOKYO -- Japanese consumer prices rose for the ninth consecutive month in February while unemployment fell to a more than six-year low, data showed Friday, suggesting Tokyo's efforts to combat years of falling prices and tepid growth were gathering steam.

The results are good news for a policy drive under Prime Minister Shinzo Abe, which is aimed at reigniting the once powerhouse economy. But the upbeat data were tempered, however, by mixed retail sales and household spending results ahead of the country's first sales tax hike since the late nineties.

The nationwide rise to an 8.0 percent levy from 5.0 percent may seem modest. But the world's third-largest economy has long been locked in a deflationary spiral and price-sensitive consumers got used to paying around the same amount year after year for their haircuts, televisions, beer and sushi.

Fears are growing that Japan's thrifty consumers will snap shut their wallets after the April 1 tax rise as prices march upward, taking a bite out of spending and derailing a nascent economic recovery.

"Consumer spending was sluggish in February, but the real surge ahead of next month's consumption tax hike will only show up in the March figures," said London-based Capital Economics.

Stripping out volatile fresh food prices, consumer prices rose 1.3 percent on-year in February, the same rate for December and January. The so-called "core core" inflation rate — excluding both energy prices and foodstuffs — rose 0.8 percent in the same month.

February's headline inflation figure was in line with the Bank of Japan's view that the core consumer prices index will stay around 1.3 percent over spring and summer, underpinned by inflation expectations, and then pick up its pace of growth after that.

The central bank dramatically stepped up its monetary easing a year ago in a bid to flood Japan's economy with ever more cash to beat deflation and bring about two percent inflation by spring next year.

Spending 'not that bad'

Falling or static prices may sound great for household budgets, but Japanese wages have barely moved over the years and the cycle meant shoppers tended to hold off buying in the hope of getting goods cheaper down the road. That, in turn, hurt producers and slowed economic growth.

The BOJ has pledged to unleash further measures if it becomes clear its current policy isn't enough to hit the inflation target, although Friday's price data was likely to curb expectations that policymakers would act soon.

Also positive were separate data showing the country's jobless rate fell to its lowest point since 2007, the year before the global financial crisis.

The jobs figures "represent companies' strong demand for workers on the back of the recent positive economic momentum," said Hamagin Research Institute economist Yuki Endo, adding that the trend was "likely to last for now."

Still, the inflation jump was largely due to Japan's rising post-Fukushima energy costs, rather than more evenly spread price rises. Costly fossil-fuel imports surged after the 2011 atomic disaster, which forced the shutdown of the nation's nuclear reactors.

On the consumer spending front, retail sales rose 3.6 percent in February from a year earlier, up for the seventh straight month, while household spending fell a surprising 2.5 percent.

"But you can't conclude Japan's spending trend is weak by just looking at the (household spending) figure because this data are known as volatile," Endo told Dow Jones Newswires.

The retail sales data, he added, showed "spending is not that bad."

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