Japan Govt Likely to Drop Word “Deflation” from Report

Japan’s Prime Minister Shinzo Abe (L) addresses a meeting of the economy and fiscal policy council, next to Finance Minister Taro Aso (R).

Amid growing signs that the Japanese economy is escaping years of price declines, the word “deflation” is falling out of favor.

Starting with its December monthly economic report due on Dec. 24, the government will likely refrain from using the word–a staple in its monthly reports in recent years–in its description of the economy, officials say.


That would be the first time since November 2009, when the government acknowledged the existence of a sustained decline in prices as the economy was reeling from the aftermath of the 2008 global financial crisis.

With a number of data pointing to signs of inflation, the cabinet office has repeatedly modified its description of the state of the economy to the point where it states that conditions are “no longer deflationary.”

The closely watched consumer price index, excluding volatile fresh food, climbed to a 0.9% annual rate for October, hitting a fresh five-year high.

The so-called “core-core” inflation index, which excludes food and energy prices, rose 0.3% on year for the first time since October 2008. A survey by the cabinet office shows the proportion of the consumers expecting prices to go up a year ahead rose to 89.5% in October.

And prices should rise further in coming months due to a further weakening of the yen from mid-November, which will push up costs of imported goods.

So is Japan finally ready to overcome 15 years of deflation?

That’s a bit premature to say, according to economists. They caution that deflation is hard to kill and can easily come back. That’s one reason why most central banks are vigilant to make sure it doesn’t take root in their economies.

Japan’s CPI briefly hit 2.0% in 2008, a level that the Bank of Japan is now trying to achieve through its large-scale monetary easing launched in April.

But that phase of higher prices was quickly squashed by the global financial crisis, which hit Japanese exports and the broader economy, sending prices back into negative territory.

This trauma, still fresh in the minds of Japanese government and central bank officials, is making them wary about victoriously declaring that deflation is now safely out of the way.

Even though the word deflation may not be in the report, that doesn’t mean that the war against chronic price falls has been won, said one official, who sees the battle continuing for a while.

http://blogs.wsj.com/economics/2013/12/19/japan-govt-likely-to-drop-word-deflation-from-report/?mod=WSJBlog