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October 1, 2010    

Japan continues its battle with deflation

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by Kay Murchie
Japan continues its battle with deflation

Official figures today revealed Japanese core consumer prices fell 1.0% in August compared with a year ago – representing the 18th consecutive monthly decline that the world’s no.2 economy has been in deflation.

A short period of deflation (where prices fall rather than increase) could be a serious threat to the economy because it deters consumers and businesses from spending in expectation of falling prices.

However, the figures were in line with market expectations and followed the 1.1% fall in July.

The Bank of Japan has kept interest rates at 0.1% since December 2008 in a bid to combat deflation and rates are likely to stay at the low level in the longer term, according to experts.

In the meantime, other figures released today showed that average household spending in Japan rose 1.7% on year in August - exceeding expectations of a 1.4% rise.

In addition, The Ministry of Internal Affairs and Communications said unemployment eased in August, with the jobless rate falling to 5.1%, down from the 5.2% reported in July.

Japan’s unemployment rate is lower than many of its counterparts throughout the world.

In comparison, the US has an unemployment rate of 9.5%, 10% for the euro zone and 7.8% for the UK.

In related news this week, it was revealed that Japanese exports slowed further in August – the sixth consecutive month in which they have eased.

The figures raise concern that the economic recovery is faltering because exports are a crucial driver for Japan’s growth.

Exports rose 15.8% in August to 5.22 trillion yen on an annual basis – well below the 45.3% high seen in February.

The figures come as the yen reached a 15-year high against the US dollar last month – leading to the country’s central bank to take action to weaken its currency.

It was the first time in six years that such action had been taken.

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