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Japan's consumer prices fall at record rate in August; Finance Minister rows back on issue of currency intervention
By Finfacts Team
Sep 29, 2009 - 8:21:26 AM
Japan's core consumer prices fell 2.4% in August year-on-year - - the fourth straight month of record falls. Meanwhile, the new Finance Minister Hirohisa Fujii said currency intervention may be an option if exchange rates make irregular moves. His remarks followed a surge in the value of the yen after he hinted he favoured a strong currency.
Inflation figures issued in Tokyo today showed core prices, excluding volatile fresh food, fell for a sixth month in a row.
The record fall for August was due to lower petrol and other energy costs as well as poor domestic demand.
Deflation may appear a good thing for Japan, the world's second largest economy, but when consumers expect future prices to be lower, they generally reduce current spending.
The Japanese economy returned to positive growth in the second quarter of 2009, exiting the worst recession since 1945.
The Bank of Japan has forecast deflation will last until the end of the financial year in March 2011 and is expected to extend its deflation forecast by another year in its next set of forecasts due out in late October.
Yen
The Japanese Finance Minister Hirohisa Fujii said today that it is important not to overreact to current foreign exchange moves, which he said are within a natural "margin of error."
The yen surged to an eight-month high against the US dollar on Monday.
Japanese authorities have not intervened in currency markets since March 2004 and Fujii told Dow Jones Newswire last week that that "foreign exchange dumping," to defend Japanese exporters would be the wrong policy.
"It would be a mistake to artificially influence foreign exchange rates," he said.
The currency reached ¥88.23 against the dollar on Monday - -- the highest since January's 13-year high of 87.10.
A stronger yen makes Japanese exports less competitive - - but makes imports more affordable for Japanese consumers.
The yen is trading at ¥89.88 against the dollar on Tuesday.
The medium-term prospects for the US dollar remain quite negative, says John Kyriakopoulos, head of currency strategy at NAB Global Markets Research, speaking to CNBC's Kaori Enjoji, Sri Jegarajah and Karen Tso Tuesday:
