September 20, 2019 / 12:10 AM / a month ago

Japan August consumer inflation eases to two-year low in blow to BOJ

FILE PHOTO: Pedestrians walk at a scramble crossing at Shibuya shopping district in Tokyo, Japan September 15, 2017. REUTERS/Toru Hanai

TOKYO (Reuters) - Japan’s core consumer inflation slowed to a new two-year low in August due to lower oil costs and feeble economic growth, data showed on Friday, adding to the central bank’s growing challenges in achieving its elusive 2% price target.

The data will keep the Bank of Japan, which kept monetary policy steady on Thursday, under pressure to ramp up an already massive stimulus programme to fend off risks that could delay it from achieving its price goal.

The nationwide core consumer price index (CPI), which includes oil products but excludes fresh food prices, rose 0.5% in August from a year earlier, matching a median market forecast and slowing from a 0.6% gain in July. It was the slowest pace of increase since July 2017, when the index rose 0.5%.

An index stripping away the effects of fresh food and energy costs, which is closely watched by the BOJ as a good indicator of price trends backed by the strength of the economy, was up 0.6% in August from a year earlier, unchanged from the previous month’s increase.

The BOJ kept policy steady on Thursday but signalled its readiness to expand stimulus as early as next month by issuing a strong warning of overseas risks that threaten the economy.

Slowing global demand and the broadening fallout from the bitter U.S.-China trade war have hurt exports and business sentiment, clouding the outlook for Japan’s economy.

While capital expenditure is holding up, analysts warn that the economy may lose support from domestic demand if October’s sales tax hike hurts already fragile consumer sentiment and cools household spending.

Years of heavy money printing have failed to prop up prices and change public perceptions that inflation will be subdued, dashing the hopes of BOJ policymakers that aggressive monetary easing will lift Japan sustainably out of deflation.

With interest rates already at zero and companies hoarding cash instead of spending, many analysts doubt whether additional monetary easing would do much to lift inflation.

Editing by Sam Holmes

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