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Monday 28th of February 2011
February 25, 2011    

Japan continues to battle with deflation

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by Kay Murchie

Official figures show Japanese core consumer prices fell 0.2% in January compared with a year ago – representing the 23rd consecutive monthly decline that the world’s third largest 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.

The fall comes despite higher commodity prices.

Deflation was a problem for Japan during its so-called “Lost Decade” in the 1990s in which the economy struggled with falling prices.

The core consumer price index is closely monitored by the Bank of Japan as it tries to bring the economy out of the long-running deflationary pressures that have hampered economic growth.

The central bank has already cut interest rates to almost zero in a bid to battle deflation and many analysts do not envisage any change to monetary policy in the short-term.

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