Japanese deflation worries persist

| November 26, 2010 | 0 Comments

Official figures today showed the Japanese economy continues to battle with deflation.

Figures revealed Japanese core consumer prices fell 0.6% in October compared with a year ago – representing the 20th consecutive monthly decline that the economy has been in deflation.

Last month, the Bank of Japan cut interest rates to almost zero. The move surprised analysts but the Bank’s measures reflected its concern about deflation.

However, it appears the move has had little success and this is undermining economic recovery.

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.

Japan is also struggling with a strong yen, which continues to weaken demand for exports and threatens the economic recovery.

Yesterday, Government data revealed a further slowdown in Japanese exports in October.

Not only were the figures below expectations but they grew at their slowest pace this year. Exports grew 7.8% in October – way below the 14.3% reported in September.

Another risk for the Japanese economy is its debt, which at nearly 200% of GDP is the highest of any industrialised nation.

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