Japan's phone wars raise deflation fears
Friday, 5 October 2007
David Pilling and Mariko Sanchanta
FT Syndication Service
TOKYO: A price war aimed at Japan's 100m mobile phone users could have a significant impact on the core consumer price index, potentially prolonging the country's brush with deflation, economists warned last Wednesday.
Any impact will depend on how new optional fee structures, the first of which are likely to be announced soon, are treated by government statisticians.
But economists said that hefty cuts in mobile service fees could knock as much as 0.6 percentage points off the headline CPI, which registered a 0.1 per cent decline in August.
After registering several years of falling prices, Japan appeared to have escaped deflation in 2006, when the rate of change of core consumer prices nudged above zero. Since then, the Bank of Japan has raised interest rates twice, to 0.5 per cent.
But in February the CPI dipped back into negative territory, largely because the CPI basket was reweighted to take into account the impact of items with fast-falling prices, such as flat-screen televisions. The headline CPI has fallen for seven straight months since then.
The Ministry of International Affairs and Communications, which compiles the CPI, must decide how to account for an expected cut in mobile phone charges of up to 30 per cent by KDDI, Japan's second-biggest mobile phone provider. NTT DoCoMo, Japan's leading mobile phone company, is expected to follow suit.
The hefty cut in the usage rate charged to subscribers will be partially offset by an increase in the cost to users of handsets, which are heavily subsidised. However, handset charges account for only 0.04 per cent in the CPI basket. Monthly fees account for 2.17 per cent.
John Richards, senior strategist at Royal Bank of Scotland in Tokyo, said that, as a worst-case scenario, a 30 per cent cut in fees could lower the CPI index by 0.6 percentage points. Given that the CPI was falling at a rate of 0.1 per cent, the impact would be "huge", he said.
Other economists said that the ministry statisticians, who have refused to discuss how they will treat the changes until they are announced by phone companies, are unlikely to include the entire 30 per cent cut in the CPI basket.
Kenichi Kawasaki, chief economist at Lehman Brothers in Tokyo, expected the change to lower the CPI by 0.2-0.3 percentage points.
FT Syndication Service
TOKYO: A price war aimed at Japan's 100m mobile phone users could have a significant impact on the core consumer price index, potentially prolonging the country's brush with deflation, economists warned last Wednesday.
Any impact will depend on how new optional fee structures, the first of which are likely to be announced soon, are treated by government statisticians.
But economists said that hefty cuts in mobile service fees could knock as much as 0.6 percentage points off the headline CPI, which registered a 0.1 per cent decline in August.
After registering several years of falling prices, Japan appeared to have escaped deflation in 2006, when the rate of change of core consumer prices nudged above zero. Since then, the Bank of Japan has raised interest rates twice, to 0.5 per cent.
But in February the CPI dipped back into negative territory, largely because the CPI basket was reweighted to take into account the impact of items with fast-falling prices, such as flat-screen televisions. The headline CPI has fallen for seven straight months since then.
The Ministry of International Affairs and Communications, which compiles the CPI, must decide how to account for an expected cut in mobile phone charges of up to 30 per cent by KDDI, Japan's second-biggest mobile phone provider. NTT DoCoMo, Japan's leading mobile phone company, is expected to follow suit.
The hefty cut in the usage rate charged to subscribers will be partially offset by an increase in the cost to users of handsets, which are heavily subsidised. However, handset charges account for only 0.04 per cent in the CPI basket. Monthly fees account for 2.17 per cent.
John Richards, senior strategist at Royal Bank of Scotland in Tokyo, said that, as a worst-case scenario, a 30 per cent cut in fees could lower the CPI index by 0.6 percentage points. Given that the CPI was falling at a rate of 0.1 per cent, the impact would be "huge", he said.
Other economists said that the ministry statisticians, who have refused to discuss how they will treat the changes until they are announced by phone companies, are unlikely to include the entire 30 per cent cut in the CPI basket.
Kenichi Kawasaki, chief economist at Lehman Brothers in Tokyo, expected the change to lower the CPI by 0.2-0.3 percentage points.