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TOKYO: Worries about the health of Japan’s economy mounted Friday
as inflation hit a new decade high on soaring commodity costs,
casting a pall over the outlook for consumer spending and company
profits.
The figures highlighted the dilemma facing many
of the world’s top central banks, which risk slamming the brakes
on already weak economic growth if they raise interest rates to try
to tame inflation.
Japan’s core inflation hit 1.9 percent in
June, the fastest pace since January 1998 when consumer prices rose
2.0 percent, the government said. It was the ninth straight monthly
increase in prices.
Japan was stuck in a deflationary spiral for
years, but the return of inflation has also been met with concern as
it is being driven entirely by rising import costs rather than a
stronger domestic economy.
“Food and energy are almost entirely
responsible for the recent rise in inflation in Japan,” said
Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo.
“Wage pressure remains much weaker than
inflation pressures. So it’s very difficult for us to believe that
consumption is picking up,” he said.
The core inflation rate, which excludes volatile
fresh seafood, fruit and vegetable prices, accelerated from an
annualized 1.5 percent in May, the Ministry of Internal Affairs and
Communications said.
The figure for June matched market forecasts.
Excluding energy costs, core consumer prices rose just 0.1 percent.
Overall prices were up 2.0 percent.
Japan’s economy is on the mend from a slump
stretching back more than a decade, but analysts say the rising
energy and raw material costs, along with weakening exports, are
putting the brakes on the recovery.
Despite the pick-up in inflation, analysts do
not expect the Bank of Japan (BoJ) to raise its super-low interest
rates from the current level of 0.5 percent any time soon given the
fragile health of the economy.
“Consumption will weaken, definitely. So in
this case the BoJ doesn’t need to respond by monetary
tightening,” Tomoko Fujii, head of economics and strategy at Bank
of America in Tokyo, said.
Core consumer prices in Tokyo, a leading
indicator released a month earlier than the figures for the whole of
Japan, rose 1.6 percent in July after a gain of 1.3 percent in June,
the government said.
Japan’s economy expanded at a brisk 4-percent
annualized pace in the first quarter of 2008 despite weak US growth
and high oil prices but domestic demand now appears to be cooling
while the global economic climate is worsening.
Japan’s exports fell for the first time in
more than four years in June as car exports to the United States and
Europe tumbled, the government said Thursday, sparking jitters that
the US economic slowdown is spreading globally.
“We don’t expect a rebound of the overseas
economies any time soon,” Fujii said. He thinks Japan’s economy
probably contracted in the second quarter of 2008 and will continue
to struggle in the third quarter.
Credit Suisse’s Shirakawa took a similarly
cautious view, predicting Japan’s economy shrank in the second
quarter and will post growth “very close to zero percent” in the
second half
.
-- AFP
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