Japan warns that deflation can drag on recovery
Japan government warns that falling prices, high joblessness could drag on recovery
Friday November 20, 2009
TOKYO (AP) -- Japan's government says the economy is in deflation for the first time in more than three years, warning that falling prices and a further worsening of the labor market could drag on the weak recovery.
The statement about deflation, coming in the Cabinet's monthly economic report Friday, is hardly a surprise as Japan's consumer price index has been declining since March.
But it shows that Japanese leaders are clearly worried about the trend, which comes amid hopeful signs of recovery in exports and industrial production.
It was the first time since August 2006 that the report identified deflation as a problem.
Falling prices may sound like a good thing, but deflation can hamper economic growth by depressing company profits, lead to wage cuts and cause consumers to postpone purchases. It can also increase debt burdens.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
TOKYO (AP) -- Japan's central bank kept its key interest rate unchanged at 0.1 percent Friday and upgraded its assessment of the world's second largest economy because of an improvement in exports.
The unanimous decision on the interest rate, which was widely expected, came at the end of the Bank of Japan's two-day policy board meeting.
"Japan's economy is picking up mainly due to various policy measures taken at home and abroad," the central bank said. Exports, a key driver of Japan's economy, and production are rising thanks to a recovery in emerging economies, it said.
The Bank of Japan upgraded its economic assessment for the third straight month, saying private consumption is also recovering due to government policy measures.
The central bank also said a year-on-year decline in prices remained stable.
But Deputy Prime Minister Naoto Kan said Friday that Japan is in deflation, while Finance Minister Hirohisa Fujii voiced grave concern over falling prices.
Deflation, which plagued Japan during its so-called "lost decade" of the 1990s, threatens to hamper growth by depressing company profits and causing consumers to postpone purchases. That can lead to production cuts, lower wages and increasing debt burdens.
The more upbeat central bank statement on the economy came on the heels of figures Monday showing that Japan's economy grew at an annualized pace of 4.8 percent in the July-September period.
Gross domestic product, or the total value of the nation's goods and services, has climbed for two straight quarters and recorded its fastest acceleration since a 5.7 percent jump in the first quarter of 2007. In the April-June quarter, GDP rose at a revised annual pace of 2.7 percent.
The Bank of Japan projected the pace of Japan's recovery is likely to remain moderate until around the middle of the fiscal 2010.
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