Deflation major issue for Japan

JAPAN: Japan’s Finance Minister voiced strong concern Friday about deflation in the world’s number two economy, saying it was a major challenge for policymakers.

“The recent price falls are not right and worrisome. This is one of the major policy issues right now,” Hirohisa Fujii told a news conference.

The Government was expected to declare in a monthly report Friday — for the first time in more than three years — that Japan is in a state of deflation.

Fujii dismissed the idea that Government spending could solve the problem, saying public works projects would not lead to higher prices. Japan was stuck in a deflationary spiral for years after its asset price bubble burst in the early 1990s, hitting corporate earnings and prompting consumers to put off purchases in the hope of further price drops.

The current global economic downturn and a slump in commodity costs pushed Asia’s biggest economy back into the deflationary doldrums. Core consumer prices have now fallen year-on-year for seven months in a row. The Japanese Central Bank announced Friday that it was leaving its key interest rate unchanged at 0.1 percent, in the face of the concerns about deflation.

Japan’s Deputy Prime Minister said Friday that the government would convey its worries about falling prices to the central bank.

“The country is in a deflationary state. We are going to tell our economic views to the Bank of Japan,” Naoto Kan told reporters. The Central Bank has predicted three straight years of falling consumer prices but has played down the risk of another full-blown deflationary spiral.

AFP