While Governor Haruhiko Kuroda’s vow to overshoot the Bank of Japan’s 2 percent inflation target caused a stir among monetary policy watchers in September, it’s yet to have an impact among retailers.
Stores as diverse as supermarket operator Aeon, Mister Donut and Wal-Mart have all announced price cuts since Kuroda’s pledge, underscoring the weakness in Japanese consumer spending and the difficulty of overcoming the "deflationary mindset" that the BOJ set out to eradicate. Consumer prices fell for an eighth straight month in October, a government report showed Friday.
“Companies are just being practical,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. “No one is buying the BOJ’s new commitment. There is strong doubt that the BOJ can even achieve the 2 percent target and the name ‘overshooting commitment’ itself is hard to understand for ordinary people.”
Falling prices and expectations for more of the same could also drag on annual wage talks, which start soon. Kuroda said last week that he’s “paying close attention” to these, as weak growth in pay has been hampering efforts to generate inflation. It’s essential for Japanese companies to set salaries based on the premise of 2 percent inflation, he said.
Base salaries, which exclude bonuses and overtime, will rise this year by less than last year, Dai-ichi Life Research Institute forecast in a report this month. This reinforces frugality among shoppers and encourages retailers to compete by discounting.
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