JAPANESE annual core consumer inflation slowed for a fourth straight month in November due largely to sliding oil prices, highlighting the challenges the central bank faces in achieving its 2 percent inflation target.

    Factory output unexpectedly fell and real wages marked the steepest drop in five years, underscoring the fragility of the recovery and dealing a blow to premier Shinzo Abe’s stimulus policies aimed at pulling the economy out of stagnation.

    The core consumer price index (CPI), which excludes volatile fresh food but includes oil products, rose 2.7 percent in November from a year earlier, matching a median market forecast, government data showed Friday.

    Stripping out the effects of a sales tax hike in April, core consumer inflation was 0.7 percent, slowing from 0.9 percent in October and far below the Bank of Japan’s 2 percent target.

    “While the economy is recovering, falling oil prices and slowing inflation will force the Bank of Japan (BOJ) to ease policy further at some point next year,” said Hiroshi Watanabe, senior economist at SMBC Nikko Securities.

    In a worrying sign for the central bank, inflation-linked government bond prices slumped over the past several weeks as investors’ inflation expectations hit their lowest since Haruhiko Kuroda became BOJ governor in March 2013.

    Japan’s economy slipped into recession in the wake of April’s tax hike, though analysts expect growth to rebound in the current quarter as exports and output pick up.

    Factory output slid 0.6 percent in November after two straight months of gains, largely the effect of big-ticket items such as computer chip-making equipment and boilers boosting October output and confounding market expectations of a 0.8 percent rise.

    In a glimmer of hope, however, manufacturers surveyed by the government expect output to rise 3.2 percent in December and increase 5.7 percent in January.

    Economics Minister Akira Amari said the drop in November was likely a temporary blip, given the sharp increase projected for the coming months.

    Kuroda stressed last week that Japan was on track to hit the price goal, shrugging off speculation that a recent plunge in oil prices would weigh on consumer prices and force him to ease policy again early next year.

    But many analysts remain doubtful that the BOJ can meet its pledge of accelerating inflation to 2 percent in the next fiscal year, beginning in April 2015.

    Reflecting the recovery, job availability hit a 22-year high.

    (SD-Agencies)

Caption:

A pedestrian walks past a window display in the Ginza shopping district in central Tokyo on Friday. Japan’s factory output and inflation rate slowed in November, official data showed Friday, dealing a fresh challenge for Tokyo’s bid to re-boot the economy, just days after pro-business Prime Minister Shinzo Abe was re-elected following a snap election.

    SD-Agencies