Consumer prices fall in Japan

Japan has been in deflation for 12
straight months, figures released by the government show.

Prices fell by 1.2 per cent in
February from a year earlier, threatening the country’s recovery from
recession.

Japan’s economy has been
periodically plagued by deflation since the “lost decade” of the
1990s, which led to years of stagnation.

The prospect that goods will become
cheaper in the future makes consumers reluctant to buy today.

This leads to a vicious circle of
falling company profits and wages.

Downward trend

The latest figures – where the core
consumer price index fell by 1.2 per cent – is not as bad as in previous
months.

But the preliminary figures for
Tokyo for March showed a steeper decline. The capital is seen as an indicator
for nationwide trends.

Eyeing an election in the summer,
the government is putting pressure on the Bank of Japan to further increase the
money supply to tackle the problem.

“The pace of decline in prices
is slowing somewhat, but prices are still falling,” said Finance Minister
Naoto Kan.

“More efforts will be needed
to escape deflation.”

Record budget

But the government has little room
to spend more to counter deflation.

Its debt is already the largest in
the industrialised world and rising.

For this reason, analysts said it
could be a long time before prices start rising again in Japan.

“There is still long way to go
before Japan pulls out of deflation,” said Takeshi Minami at the
Norinchukin Research Institute.

“The Bank of Japan has said it
will patiently maintain very easy monetary policy. They really need to do so
for a very long time for the country to escape deflation.”

On Wednesday, 24 March, parliament
passed a record $1 trillion budget, much of it financed by borrowing.

The Japanese economy grew by 0.9
per cent in the final three months of last year, or 3.8 per cent on an
annualised basis.

It is vying with China for the
title of the world’s second-largest economy, behind the US.

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