Inflation Continues as Household Spending Declines in Japan

Japanese Consumer Price Index (CPI) fell for 0.1% from last year in October, the third straight decline following August and September.

According to Reuters, the decline of Japanese core CPI was predominantly due to the effect of falling energy costs. Bank of Japan has already taken a look through the CPI to determine whether additional monetary easing is necessary to achieve the inflation target. Previously, Japan slipped into recession in July to September as consumer prices drifted because of oil price falls and low household spending.

Bank of Japan is expected to expand a massive stimulus program as almost half of the analyst told Reuters. However, many officials in the central Bank are reluctant to do so, unless weakness in overseas demand persists long enough to decrease business confidence. Japanese government under Shinzo Abe has pressured companies to spend their record profits on wages and capital expenditure.

Currently Japan's job-to-applicant ratio in October was 1:24, showing the tight employment market. While on the other hand, unemployement rate fell 3.1% from 3.4% in September.

Bloomberg reported that although Japanese unemployment is low and jobs are plentiful, this still hasn't flowed into strong wage gains that could help spur inflation. Governor of Bank of Japan, Haruhiko Kuroda said, "Wage gains have been somewhat slow considering strong corporate profits and the solid labor market."

Japan aimed to reach a 2% inflation in 2015. Nevertheless, the increase of core CPI that continue to rise since 2013 indicate the needs for more aggressive stimulus. Regarding the likelihood of further monetary stimulus, economists are divided into two opposite sides: one is expecting more stimulus in 2016 and the other is projecting no stimulus is needed for the foreseeable future.

Meanwhile as Wall Street Journal reported, Prime Minister, Shinzo Abe on Thursday announced that he would increase spending on social programs and raise the minimum wage. Prime Minister said the government would give cash handouts to the elderly poor, and build child-care and elder-care facilities to help people enter and stay in the workforce. The effort is part of stimulus package expected to cost at least ¥3 trillion ($24 billion).

Last September Prime Minister declared second phase of his Abenomics growth program, a plan to expand Japan's economy by 20% by 2020. However many economists deemed the target as unrealistic. On Thursday announcement, Mr. Abe said theme of second phase is inclusion, to help more people contribute to and benefit from economic activity.

With a social stimulus package prepared by government, Japanese government expected the second phase of Abenomics will be able to jumpstart its economy.