The government dropped the word “deflation” in its monthly economic report Tuesday for the first time in more than four years amid signs of growth in consumer spending, but it refrained from announcing the end of deflation because prices could still fall back.
In its December report, the Cabinet Office said consumer spending — comprising about 60 percent of Japanese gross domestic product — is “picking up,” raising its assessment of this category for the first time in eight months.
The Abe administration left its basic assessment unchanged, saying the economy “is on the way to recovery at a moderate pace.”
It is saying the continued price falls are on the verge of ending after consumer prices rose 0.9 percent in October year on year, the fastest growth in five years on higher energy prices amid the yen’s weakness.
Consumer prices excluding volatile fresh food and energy meanwhile hit their highest level since August 1998.
An official in the Cabinet Office said such price developments are likely to continue at least for a few months but added that uncertainty remains over whether prices will continue to rise further in light of the consumption tax hike in April and downside risks to the global economy.
The December assessment said exports have been “in a weak tone recently” due to a slowdown in some emerging economies, using the same expression for the second consecutive month. In November, the government downgraded its view on exports, a major driver of growth, for the third straight month.
But the government remained optimistic about the future course of exports, referring to the recent depreciation of the yen against other major currencies.
A weaker yen boosts Japan’s competitiveness in exports, which account for around 15 percent of GDP, by making Japanese products cheaper abroad and lifting the value of overseas revenues in yen terms.
The government upgraded its assessments of imports as well as business sentiment, both for the first time in two months.
As for business investment, which the Abe Cabinet sees as a pillar of economic growth, the government left its view unchanged in December, saying it “shows movements of picking up, mainly among nonmanufacturing industries.”
Prime Minister Shinzo Abe, striving to end nearly two decades of deflation, has been eagerly promoting his “Abenomics” policy package, which has helped to lift share prices and weaken the yen.
It was in March 2001 that the government declared for the first time after World War II that the economy was mired in deflation. The term was dropped from the report in July 2006, but the government began employing it again in November 2009 in the wake of the financial crisis triggered by the collapse of U.S. investment bank Lehman Brothers Holdings Inc.