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October 19, 2010    

Fears for Japanese economy as yen strengthens

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by Kay Murchie

Concern has been raised for Japan’s recovery today after the Cabinet Office said the economy is at a standstill, attributed to the rising yen, which is weakening demand for exports.

As a result of a rising yen, the Bank of Japan (BoJ) intervened to stem the currency against the US dollar – the first time in six years that such action had been taken.

The Japanese yen has been hovering around 15-year highs against the dollar.

Japan’s Prime Minister, Naoto Kan, recently approved a 5.1 trillion yen stimulus package, in a bid to safeguard exporters.

Government officials have said a renewed recession could not be ruled out.

Meanwhile, the Government also reiterated its concern about deflation.

Recent figures revealed Japanese core consumer prices fell 1.0% in August compared with a year ago – representing the 18th consecutive monthly decline that the economy has been in deflation.

Earlier this month, the BoJ cut interest rates to almost zero. The move surprised analysts but the Bank’s measures reflected its concern about 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.

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