Japan Deflation Still Proving A Problem

The Japanese economy appears to be still caught up in a deflation cycle which has seen consumer prices fall steadily over the course of calendar year 2007, according to official figures released today.

In the figures released by the Bank of Japan, consumer prices on average feel by around 0.1% over August from this time last year, which many analysts have held to be indicative of wider underlying problems in the Japanese economy.

The news has been taken as a sign that the economy is struggling in light of the sub-prime crisis and credit crunch environment, and hopes that the Bank of Japan were considering a further interest rate rise this year have now been all but dashed as a consequence.

Industrial production and output excelled beyond previous expectations for the month, rising 3.4% on last months figures as a result of a strengthening car industry. Additionally, the level of exports from Japan was on the increase.

Analysts are hoping that the continued weakening trend of deflation in consumer prices will soon be broken, to allow a break through into positive price growth, a situation central banks are more used to dealing with.

The Bank of Japan is said to eager to lift interest rates further from their current positions, although the fact that prices on the high street and further afield are continuing to fall has almost completely ruled this out for the time being.

The volatility of US mortgage markets has without doubt unsettled the Japanese marketplace, and analysts have suggest that the combined effect of all factors, including these externalities has been responsible for the downturn in price growth over the period.

Whilst inflation is obviously not desirable within an economy, deflation can cause significant problems in terms of business performance, and can have an adverse effect on the valuation of currency on the global markets.

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