-Junko Nishioka, chief Japan economist at Royal Bank of Scotland Group
Japan's core consumer prices rose at the fastest pace since April 1982, advancing 3.4% in May from the previous year, boosted by a sales-tax hike and higher utility costs, which squeeze household budgets as wage gains remain subdued. On an annual basis consumer prices in the world third biggest economy have increased for 12 consecutive months, an encouraging sign for the Bank of Japan and Prime Minister Shinzo Abe's attempt to finally rid the country of the threat of deflation. The BOJ has estimated the sales-tax hike would add 2 percentage points to the core inflation rate in May. However, earlier this week Governor Haruhiko Kuroda said that price gains are likely to slow in coming months before accelerating again towards the BoJ's 2% goal, falling to around 1% through summer before reaching the 2% target around the fiscal year starting in April.
Separately, another data showed that Japan's retail sales declined 0.4% on year in April, coming in at 11.434 trillion yen. The figure beat analysts' forecast for a 2.0% drop following the 4.3% contraction in April, due to the fading drag from the April sales tax increase. Meanwhile, the unemployment rate fell to 3.5% in May, adding to signs that a tighter labour market will boost wages and bolster consumer spending.
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