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Monday, December 15, 2003

Japan Deflation Set to Continue

Slow blogging only today I'm afraid. It isn't so much that winter is setting in here in Barcelona, as the fact that I have a pile of admin on my desk! So on the more mundane topic of the future of the global economy, this snippet from Japan does seem to confirm the picture: deflation will continue, and will logically increase if there is any slowdown in global growth:

Japan's central bank will probably keep interest rates almost at zero today to fight deflation and bolster a recovery from a 12-year slump, economists said.

Governor Toshihiko Fukui and his eight policy board colleagues, meeting in Tokyo, will also keep monthly purchases of government bonds from banks at 1.2 trillion yen ($11.1 billion), 13 of 15 economists surveyed by Bloomberg News said.

The Bank of Japan's Tankan survey last week showed confidence among large manufacturers at its highest since June 1997 as accelerating global economic growth boosts demand for cars, DVD players and mobile phones. Retailers and service companies that rely on the Japanese market were pessimistic as consumer spending and prices fell.

``An export-driven recovery will continue, but that won't be enough to stamp out deflation,'' said Ryutaro Kono, chief economist at BNP Paribas Securities Ltd. ``So the bank's choice is the status quo.''

Fukui and other board members have said consumer prices will extend their slide after rising in October for the first time in 5 1/2 years. October's rise was caused by temporary factors such as higher rice prices and increased tobacco taxes, they said.

The bank lowered interest rates to almost zero in March 2001 and promised to keep them there until nationwide consumer prices stop falling for at least several months and the bank is sure they won't slide again.

Board members projected on Oct. 31 that core consumer prices, which exclude fresh food, would fall 0.2 percent in the fiscal year ending March 31 and 0.3 percent next fiscal year.

Fukui said last week that the world's second-largest economy is on a ``fragile basis'' and that ``considerable time'' is needed before Japan can overcome deflation.
Source: Bllomberg

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