Japan’s finance minister voiced strong concern yesterday about deflation in the world’s No. 2 economy, saying the price drops are a major challenge for policymakers.
“The recent price falls are not right, and worrisome. This is one of the major policy issues right now,” Hirohisa Fujii told a news conference.
The government declared in a monthly report yesterday that Japan is in a state of deflation, the first such announcement in more than three years.
Reviews of prices development have shown that “Japan is in a mild deflationary situation,” the Cabinet Office said in a statement.
The report also said a tough employment situation will continue for the time being. Japan’s unemployment rate stood at 5.3 percent in September.
Fujii dismissed the idea that government spending could solve the problem, saying public works projects would not lead to higher prices.
Japan was stuck in a deflationary spiral for years after its asset price bubble burst in the early 1990s, hitting corporate earnings and prompting consumers to put off purchases in the hope of further price drops.
The current global economic downturn and a slump in commodity costs pushed Asia’s biggest economy back into the deflationary doldrums.
Core consumer prices have now fallen year-on-year for seven months in a row.
Japan’s central bank announced yesterday that it was leaving its key interest rate unchanged at 0.1 percent, in the face of the concerns about deflation.
Japan’s deputy prime minister said yesterday that the government would convey its worries about falling prices to the central bank.
“The country is in a deflationary state. We are going to tell our economic views to the Bank of Japan,” Naoto Kan told reporters.
The central bank has predicted three straight years of falling consumer prices but has played down the risk of another full-blown deflationary spiral.
The Bank of Japan announced last month it would halt some of its emergency measures to tackle the financial crisis at the end of the year, despite pressure from the government not to withdraw its stimulus steps too soon.
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