Tue, Apr 14, 2009 - Page 11 News List

Japan’s wholesale prices exacerbate deflation fears

RAYS OF HOPE Economist Hideyuki Araki said price falls should slow as raw material costs have stabilized and the government’s stimulus package should prop up demand


Japanese wholesale prices fell at their fastest annual pace in nearly seven years last month, official data showed yesterday, adding to worries about the renewed threat of deflation.

Corporate goods prices fell by 2.2 percent last month from a year earlier, down for a third straight month, the Bank of Japan reported.

It was the steepest year-on-year drop since May 2002 and followed declines of 1.6 percent in February and 0.7 percent in January.

“Companies are in tough competition to cut prices due to weak consumer sentiment,” said Hideyuki Araki, economist at the Resona Research Institute. “Consumers are now worried about their jobs or pay cuts. It’s natural that they want cheaper goods.”

Lower energy costs contributed to last month’s drop, the central bank said.

But the fall in prices should slow as raw material costs have stopped plunging and the government’s planned ¥15.4 trillion (US$150 billion) stimulus spending plan should support domestic demand, Araki said.

Japan, the world’s second-largest economy, was stuck in a deflationary spiral for years after its asset price bubble burst in the early 1990s, prompting the central bank to slash interest rates to almost zero.

Annual wholesale inflation surged to more than 7 percent last August on the back of higher oil and material costs, but has since evaporated.

Consumer price inflation has also slowed to zero and the Bank of Japan has forecast two years of deflation, following a slump in exports that has tipped the country into its worst economic crisis since World War II.

Compared with the previous month, wholesale prices were down 0.2 percent last month, following a fall of 0.5 percent in February, it estimated.

In related news, Japan said yesterday it would end punitive tariffs on computer memory chips made by South Korea’s Hynix Semiconductor, bringing an end to a three-year-old trade dispute.

Tokyo decided to lift the measures because it has confirmed that Hynix no longer receives subsidies, a finance ministry official said.

Japan imposed the tariffs on Hynix in 2006, citing an “unfair” bailout of the then-troubled company by its creditors in 2002 and its alleged dumping of dynamic random access memory (DRAM) chips in Japan.

South Korea has said the Japanese decision breached world trade rules and was based on allegations only from Japanese firms.

The WTO ruled last year that the Japanese government should remove duty on DRAM chips made by Hynix, the world’s second-largest memory chipmaker.

The South Korean firm said Tokyo’s decision would help it boost sales in the world’s second-largest economy.

“That will help Hynix increase its market share in Japan,” the company said in a statement, estimating the annual sales boost at about US$200 million.

Hynix posted a net loss of 4.38 trillion won (US$3.28 billion) last year, the first in five years, because of falling prices amid a global recession.

In December last year, creditors agreed to inject 800 billion won into Hynix and to roll over its maturing debt to the end of the year.

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