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Japan's price expectations weaken as pandemic stokes deflation fears

FILE PHOTO: Shoppers wearing protective face masks walk on the street at Tsukiji outer market, amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan December 24, 2020. REUTERS/Issei Kato

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

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