By Leika Kihara
TOKYO (Reuters) – Japanese household inflation expectations hit an eight-year low in the three months to December, a central bank survey showed on Tuesday, suggesting the coronavirus pandemic has heightened deflationary risks in the world’s third-largest economy.
The outcome highlights the challenge the Bank of Japan faces in firing up inflation to its elusive 2% target, and keeps it under pressure to support an economy hit by a newly issued state of emergency to combat the pandemic.
The ratio of households who expect prices to rise a year from now stood at 60% in December, down from 63.3% in September and hitting the lowest level since December 2012, the BOJ’s quarterly survey on households showed.
In a sign deflationary pressure was already heightening, the ratio of those who thought prices have risen from a year ago fell to 60.5% in December from 65.9% in September, it showed.
Households’ sentiment on the state of the economy improved somewhat but hovered near lows hit in 2009, when Japan was reeling from a global financial crisis triggered by the collapse of Lehman Brothers, according to the survey.
Nearly 90% of households said they reduced the number of outings for leisure and entertainment compared with March last year, when the coronavirus began to spread.
About 67% said they plan to further curb leisure and entertainment-related outings, while 71% said they don’t plan to change the amount they spend to enjoy time they spend at home.
Japan is set to extend a state of emergency from the Tokyo metropolitan area to other regions as COVID-19 cases increase, a move that could heighten the risk of a double-dip recession and hurt prices by cooling domestic demand.
Core consumer prices fell 0.9% in November from a year earlier, the fastest pace of decline in a decade.
(Reporting by Leika Kihara; Editing by Chris Gallagher and Sam Holmes)
