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Affected by a drop in fuel prices, Japan’s nationwide core consumer price index fell 0.1 percent in February, marking the first decline in 10 months, the Ministry of Internal Affairs and Communications said Friday.

The core nationwide CPI, which excludes perishables, stood at 99.4 in February against the base of 100 for 2005, the ministry said in a report.

Market watchers said, given the weak CPI, the Bank of Japan is unlikely to raise its benchmark interest rate until the fall.

“Since the economy is currently not growing or shrinking, the BOJ will not raise its interest rate until fall at the earliest,” said Keisuke Fukuda, an economist at Mitsubishi UFJ Securities Co.

Fukuda added that the CPI may become positive again in three to four months.

Gasoline prices dropped 0.3 percent from the same month a year ago in February after a 3.5 percent increase year-on-year in January.

The ministry said overall CPI, which includes fresh food prices, declined 0.2 percent on year in February.

The core price index in metropolitan Tokyo, an indicator of national price trends for the month ahead, dropped 0.1 in March following a drop in mobile phone fees.

The weak CPI dashed hopes for a government declaration that the country has fully emerged from years of deflation.

Although Economic and Fiscal Policy Minister Hiroko Ota said the end of deflation is in sight, she remained cautious.

“I’d like to determine whether Japan’s deflation is over after studying the gross domestic product deflator for the first quarter of 2007,” she said.

Household spending up Kyodo News Japan’s average monthly household spending rose a real 1.3 percent in February from a year earlier to 272,763 yen for the second straight month of growth, the government said Friday.

The continued growth came after the nation’s household expenditures fell for a record 12 straight months through December, according to the Ministry of Internal Affairs and Communications.

The spending growth was larger than private-sector economists’ average forecast of 0.5 percent growth in a recent poll by Kyodo News.

In February, spending on clothing and footwear rose 10.6 percent, while outlays for transportation and telecommunication increased 7.3 percent, and cultural and entertainment-related expenditures rose 2.8 percent.

By contrast, outlays fell 7.5 percent on electricity and water, 6.4 percent on housing, and 4.4 percent on education.

The average monthly income of salaried households came to 471,681 yen, up 2.3 percent. Disposable income came to 402,942 yen, up 2.8 percent for the fourth straight month of growth.

Household spending data are a key indicator of personal spending, which accounts for about 55 percent of Japan’s gross domestic product.

Industrial output dips

Kyodo News

Japan’s industrial production shrank a seasonally adjusted 0.2 percent in February from the previous month for the second straight month of decline, the industry ministry said Friday, but economists believe firm domestic and external demand will fuel output in the months ahead.

Although the reading beat the average market forecast of a 0.6 percent contraction, the fall led the Ministry of Economy, Trade and Industry to revise downward its assessment of industrial output for the first time since September 2004.

The ministry said production is “on a gradual upward trend,” downgrading from the January assessment saying production is “on an upward trend.”

Economists said they believe the recent slowdown in output was temporary because sectors such as automakers and general machinery makers are expected to increase production in the coming months, given solid exports since the start of the year.

Even electronic parts and devices manufacturers, which logged a sharp fall in output in February, are likely to boost production thanks to rising demand from abroad and a growing number of mobile phone subscribers at home, although risks remain over adjustments of their inventory buildups since last summer.

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