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Prolonged deflation near end: government

Kyodo

Prolonged deflation is on the verge of ending, the government said Thursday, while maintaining its upbeat assessment on the overall economy for the second straight month.

“Recent price developments indicate that the deflation is ending,” the Cabinet Office said in its monthly economic report for August. The economy is “picking up steadily and shows some movements on the way to recovery.”

Last month, Prime Minister Shinzo Abe’s administration upgraded its view on the economy for the third straight month, using the word “recovery” for the first time in 10 months and claiming that deflation is “easing.”

Thursday’s report came as economic data have suggested that prices have started to rise on the back of Abe’s policies centering on drastic monetary easing and depreciation of the yen.

Consumer prices rose 0.4 percent in June from a year earlier, marking the first increase in a year and two months, the government said in late July.

According to gross domestic product data released Monday, the GDP deflator, a wider price gauge than the consumer price index, gained 0.1 percent from the previous quarter in the April to June period, posting the first gain in three quarters.

A Cabinet Office official briefing reporters said prices have been leveling off, but it would be difficult to formally declare an end to deflation until the government confirms they are unlikely to fall back again.

For August, the office upgraded its assessment of employment, saying it is “improving.”

The unemployment rate slipped to 3.9 percent in June from 4.1 percent in the previous month, falling below 4 percent for the first time in four years and eight months, as companies have been hiring more workers amid signs of economic recovery.

In the monthly economic report, the government said private consumption is “picking up,” industrial production is “increasing at a moderate pace” and exports “show movements of picking up.”

The economy grew an annualized real 2.6 percent in the three months through June, with consumer spending and exports recuperating.

A falling yen usually supports exports by making Japanese firms’ products cheaper abroad and raising the value of overseas revenue in yen terms. But consumers are feeling the squeeze as prices of imported goods, including food and fuel, surge.