Weak consumer spending data had already suggested the decline was coming, and the GDP data bore this out: real household consumption (excluding imputed rent) fell a sharp 3.5%. This cannot be blamed on the vagaries of deflators because even the nominal amounts fell across the board, from durables to services.
Over the next twelve months the job market will slowly tighten as rising labour demand confronts a declining labour force.
The CPI will remain below the Bank of Japan's (BoJ) target because aggregate demand, especially from households, remains less than robust.
The BoJ will increase stimulus measures if third-quarter GDP is not strong and inflation remains weak.
By 2016, prices and wages will rise more vigorously due to monetary policy and the tightening labour market.
