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Japanese retailer Aeon plans big price cuts to BOJ's dismay
April 11, 2017 / 10:21 AM / 5 months ago

Japanese retailer Aeon plans big price cuts to BOJ's dismay

* Aeon to cut prices for over 250 food, daily necessities

* Other retailers, carriers also undertaking price cuts

* Decisions underscore Japan’s persistent deflation mindset

* Add pressure on BOJ to slash inflation forecasts

By Leika Kihara and Sam Nussey

TOKYO, April 11 (Reuters) - Top Japanese retailer Aeon Co is cutting prices for over 250 items ranging from milk to daily necessities to lure cost-savvy shoppers, underscoring the difficulty facing the central bank as it tries to spur inflation and coax consumers to boost spending.

The Bank of Japan’s 2 percent inflation target remains elusive despite more than three years of massive money printing intended to spur economic activity.

Aeon’s move adds to headaches for BOJ policymakers, who hoped a solid economic recovery will prompt firms to raise prices and help maintain the bank’s rosy price forecasts this month.

“The BOJ’s view is that rising oil prices would help raise consumer prices this year, but these price cuts could be a headwind and might force the bank to lower its price outlook,” said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.

“We’re still not in a situation where price increases for a wide range of products are widely accepted.”

Aeon said on Tuesday it will cut prices of 254 food items and daily necessities at around 400 outlets nationwide by the end of this month.

That would follow price cuts on more than 140 items in March, a sign that many retailers consider discounts as the best way to lure households into spending.

“For commoditised goods, it’s important to provide them as cheap as possible,” said Soichi Okazaki, who oversees Aeon’s retail outlets.

Faced with weak consumption, other retailers are also embarking on price cuts to the dismay of the BOJ.

Seven & i Holdings Co said it will slash prices for 61 daily necessities at its 7-Eleven outlets this month.

Seiyu, a retailer under the arm of U.S. retailer Walmart , cut prices for more than 200 products from February.

Retailers aren’t alone. Some mobile phone carriers have cut bills amid stiff price competition.

“The BOJ probably believes underlying price moves are somewhat weaker than expected,” said one official familiar with the central bank’s thinking.

The BOJ now projects core consumer inflation to hit 1.5 percent in the current fiscal year that ends in March 2018, and accelerate to 1.7 percent in fiscal 2018.

The central bank will review its economic and price projections at its policy meeting on April 26-27.

Japan has been mired in deflation for nearly two decades as households sit on a pile of cash on uncertainty over the outlook.

The BOJ has deployed massive monetary stimulus since 2013 in hopes of changing the public’s perception that deflation will persist, with little success.

Core consumer prices rose 0.2 percent in February from a year earlier.

But a separate consumer price index that excludes the effect of volatile fresh food and energy costs rose just 0.1 percent in February, suggesting that weak consumption was preventing companies from raising prices of non-energy items. (Additional reporting by Minami Funakoshi and Ritsuko Shimizu; Editing by Kim Coghill)

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