Sunday, November 27, 2005

Japanese deflation appears to end

Japanese consumer prices failed to fall for the first time in five months in October, fanning optimism that the long period of deflation is set to end.
However, policymakers warned that it was too early to say for certain that prices would now start to rise.
The government has been urging the Bank of Japan not to change its zero-interest rate policy for fear of snuffing out an economic rebound.
It said the central bank needs to work with the government to end deflation.
Steady hand
The world's second-largest economy is slowly emerging from recession and deflation that has eroded wages, corporate earnings and consumer confidence.
"Before we make various policies, including the budget, based on this, we must determine whether this will continue," said Economy and Banking Minister Kaoru Yosano.
While the core inflation figure was unchanged, prices overall - including fresh foods, which are omitted from the headline calculation - fell 0.7% in October, the Ministry of Internal Affairs and Communications said.
The Bank of Japan has had a policy of low interest rates for almost five years in an effort to breathe life into the economy.
However, recently it has hinted that it would move to raise rates should price growth pick up.
Good six months?
Analysts said that they expect the bank to hike borrowing costs in the second quarter - which runs from April to June - of next year.
"At this rate, we could see six months of flat or positive core consumer price figures by March," said Seiji Adachi, an analyst at Deutsche Securities.
Government figures showed that Japan's economy expanded at a faster-than-expected 0.4% in the third quarter, boosted by strong domestic demand.
That brought Japan's growth rate for the year to an annualised 1.7%, well above forecasts which predicted a figure of 1%.
Speaking earlier this month, Bank of Japan governor Toshihiko Fukui said that "rises in prices may not accelerate, but it's unlikely that they will fall back into negative territory once they start rising".
Story from BBC NEWS: 2005/11/25 07:37:12 GMT© BBC MMV


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