Japan consumer prices declined 0.4% year on year in February after falling 0.6% in January as the pandemic continued to affect consumption, the Ministry of Internal Affairs and Communications said Friday.
Prices were mainly affected by the cost of utilities which fell 5.8% and education which was down 2.1%, transport and communications. Prices for medical care dipped 1.3% and recreation cost fell 0.2%.
Food prices remained unchanged - down 0.1%. Core consumer prices, which exclude fresh food, dropped 0.4% on an annual basis in February, matching consensus.
Headline inflation recovered further in February owing mainly to a pickup in energy inflation and should continue to rebound over the coming months as energy becomes a significant tail wind, the data said. Electricity and gas prices were down 6.8% compared with a fall of 7.2% a month earlier.
"Underlying inflation will remain positive and may rise a little over the coming months. And driven by strong energy inflation, we now think headline inflation will hit 1.0% year over year later in 2021 before falling back," according to Capital Economics Japan economist Tom Learmouth on Friday.
Meanwhile, the Bank of Japan left its main short-term interest rate unchanged at minus 0.1% and maintained its target for the 10-year Japan government bond yield at around zero at its March meeting by an 8-1 vote, according to a bank statement Friday.
The bank announced changes to its policy to ensure flexibility as the coronavirus pandemic raises the prospect of protracted monetary easing.
The bank wants to address the bad effects of keeping interest rates low for an extended period and aggressively buying assets to support the economy.
