TOKYO- Japan’s business-to-business service prices rose 2.1 percent year-on-year in January, slowing from a 2.4 percent annual gain in December, central bank data showed on Monday.
The Bank of Japan is closely watching service price movements to see whether inflationary pressure is broadening in the economy to warrant phasing out its massive stimulus.
Japan unexpectedly slipped into a recession at the end of last year, losing its title as the world’s third-biggest economy to Germany and raising doubts about when the central bank would begin to exit its decade-long ultra-loose monetary policy.
Some analysts are warning of another contraction in the current quarter as weak demand in China, sluggish consumption and production halts at a unit of Toyota Motor Corp all point to a challenging path to an economic recovery.
Japan’s gross domestic product (GDP) fell an annualised 0.4 percent in the October-December period after a 3.3 percent slump in the previous quarter, government data showed on Thursday, confounding market forecasts for a 1.4 percent increase.
Two consecutive quarters of contraction are typically considered the definition of a technical recession.
While many analysts still expect the Bank of Japan to phase out its massive monetary stimulus this year, the weak data may cast doubt on its forecast that rising wages will underpin consumption and keep inflation durably around its 2 percent target.
Private consumption, which makes up more than half of economic activity, fell 0.2 percent, versus market forecasts for a 0.1 percent gain, as rising living costs and warm weather discouraged households from dining out and buying winter clothes.
Capital expenditure, another key private-sector growth engine, fell 0.1 percent, compared with forecasts of a 0.3 percent gain.
Both consumption and capital expenditure shrank for the third straight quarter.
Big companies expect to increase capital expenditure by hefty 13.5 percent in the year ending in March, a quarterly survey showed. But analysts point to a delay in actual investment due to rising raw material costs and labour shortages. -Reuters
