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Japan’s Prices Rise Most Since 2008
in Boost for Abe

Japan’s consumer prices increased at the fastest pace since
2008 in July, as energy
costs rise
and Prime Minister Shinzo Abe makes progress in pulling the
economy out of 15 years of deflation.

Consumer
prices excluding fresh food 
climbed 0.7 percent from a year earlier,
the statistics bureau said today in Tokyo. That exceeded the median
estimate of 29 analysts surveyed by Bloomberg for a 0.6 percent gain.
Industrial output increased a less-than-forecast 3.2 percent from the previous
month.

“Japan is moving into real inflation,” said Junko
Nishioka, chief economist at Royal Bank of Scotland Group Plc in Tokyo and a
former Bank of Japan official. “Today’s data is encouraging for the BOJ, and
they are likely to keep monetary policy on hold.”

Higher energy costs following the shutdown of the country’s
nuclear reactors drove prices higher as the BOJ rolls out an unprecedented
easing that helped spur a third straight quarter of growth. The central bank’s
pledge in April to double the monetary base over two years has weakened the
yen, which has tumbled 20 percent against the dollar over the past year, making
imported oil and wheat more expensive.

The Nikkei 225 Stock Average fell 0.3 percent as of 12:33
p.m. in Tokyo, erasing an earlier rise. The yen rose 0.1 percent to 98.22
per dollar.

Early Stages

Stripping away energy and fresh food prices, deflationary
pressures showed signs of easing. By that measure, prices fell 0.1 percent in
July, slowing from a 0.2 percent decline in June, today’s report showed. It was
the smallest drop since February 2009, and less than a median forecast for a
0.2 percent drop in a Bloomberg survey.

The jobless rate was 3.8 percent, a separate
government report showed today.

A sales-tax increase planned for April threatens to damp the
economy’s recovery even as it would help to shore up the nation’s finances.
Bank of Japan Deputy Governor Kikuo Iwata this week called for patience, saying
it would take more time for the central bank’s unprecedented monetary easing to
trigger “persistent and steady pickups in prices and wages.”

The BOJ’s loosening is “in its early stages, and I hope you
will be patient enough to see its effects permeate the economy,” he said.

Wheat Prices

Wheat prices in Japan, which imports 60 percent of its food,
will increase for the third time in a year on a weaker yen, with imports sold
by the government to flour millers including Nisshin Seifun Group Inc.
(2002) rising about 4.1 percent on average in October, the ministry of
agriculture said on Aug. 28.

A maker of Japanese sake, Nihon Sakari Co., announced on
Aug. 27 its first price increase in 19 years from October, citing rising prices
raw material prices and higher logistical costs.

Oil rose to the highest level in two years this week on
concern that a conflict in Syria may spread and threaten supply from
the Middle East. Gasoline prices at home stayed at 160.2 yen ($1.64) per liter
for a third straight week, the highest since October 2008, the trade ministry
reported on Aug. 28.

“Price are rising, basically because of rising energy
costs,” said Masamichi Adachi, a senior economist at JPMorgan Chase &
Co. in Tokyo and a former BOJ official.

Sales Tax

Abe has summoned 60 economists, business leaders and representatives
of consumers to discuss this week whether to lift the sales tax to 8 percent in
April from 5 percent now, followed by another increase to 10 percent in 2015.

He will make a decision by early October, taking into
account views of those people and economic data, including revised gross
domestic product data for the second quarter on Sept. 9. Preliminary data
showed annualized growth of 2.6% from the previous quarter.

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