Japan’s core consumer prices have risen for the first time in over a year thanks to a pickup in energy costs, marking a rare victory in the government’s long battle against deflation.



But a slump in household spending showed by 1.2% compared with January last year showed why economic growth and inflation have lagged the more ambitious goals set out by policymakers.

As rising protectionism in the United States poses risks for the world’s third-largest economy, as well as the rest of export-reliant Asia, there is a danger companies will shy away from boosting wages seen as crucial for durable growth.

That will also undermine the Bank of Japan’s efforts to accelerate inflation to its still-distant 2 percent target, analysts say.

Government data showed on Friday that the core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, rose 0.1% in January from a year ago, posting the first increase since December 2015.

It compared with a median market forecast for a flat growth and followed a 0.2% drop in December.

Many analysts expect core consumer prices to head toward 1% later this year helped by the strengthening US dollar pushing the yen lower. A fall in the currency will make imports more expensive for Japanese consumers, which will boost prices.

“Inflation will accelerate this year due to a rebound in energy costs and the weak-yen effect. But it won’t heighten much next year unless wages spike and boost spending,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“The hurdle for hitting 2% inflation remains very high, which means the BOJ will maintain its ultra-loose monetary policy for the time being,” he said.

Slow wage growth is weighing on consumer spending – which accounts for more than a half of Japan’s GDP – despite a tight jobs market.

Unemployment has been at its lowest level in around 20 years. Fresh data on Friday showed the jobless rate edged down from 3.1% in December to 3% in January.

This week, Japan posted an unexpected drop in factory output for January, the first fall in six months and the latest red flag for the world’s number three economy.

Japan has been struggling to reverse a years-long deflationary spiral of falling prices and lacklustre growth.

“The government is teaming up with the Bank of Japan to keep working toward getting out of deflation,” top government spokesman Yoshihide Suga told reporters Friday.

Tokyo’s years-long effort to kickstart growth – a blend of massive monetary easing, government spending and red-tape slashing – stoked a stock market rally, weakened the yen and fattened corporate profits, but growth in the wider economy remains fragile.