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The government Tuesday upgraded its view on price trends and maintained its upbeat assessment on the overall economy for the fourth straight month.

“Although the economy is still in a deflationary phase, improvements are seen,” the Cabinet Office said in the monthly report for June.

In last month’s report, the government said, “Some improvements are seen, but the economy is still in a mild deflationary phase.”

The slight change appears to emphasize improvements instead of continued price falls.

The upgrade in its position on price trends has been interpreted by the market as a sign the government is edging closer to officially declaring an end of seven years of deflation and could encourage the Bank of Japan to end its “zero-interest-rate” policy in the near future.

“We can say deflationary pressure is waning,” said a government official who briefed reporters on the report.

The spokesman said the government still needs to monitor price trends for awhile as the consumer price index, excluding energy and some special items like utilities, rose only by 0.2 percent in April from the previous year.

With such a meager increase, the year-on-year change could fall into the negative as a result of scheduled revisions to the CPI in August in updating the base year from 2000 to 2005, the official said.

Meanwhile, the government held steady on its bullish view on the economy, saying it is “recovering.”

The recovery now stretches back to February 2002, continuing for 53 straight months. If the economy continues to grow through November, it will be the longest period of uninterrupted growth since the war. It will surpass the 57-month boom of November 1965 to July 1970, even though the pace of growth is much slower this time around.

The June report says housing construction has been “increasing” recently, an improvement over the previous report’s assessment of “staying almost flat.”

The government official attributed the upward revision to robust demand for condominiums in big buildings in the Tokyo metropolitan area.

“Exports and industrial production are increasing moderately,” the June report says, a downgrade from last month’s “increasing.” The change is due mainly to the slump in exports of electric machinery to Asia and the U.S.

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