Amid the hysteria over Dubai’s little shock late last week there was some good and bad news from Tokyo.
Japanese unemployment surprised for a third month by falling, but consumer inflation once again fell compared with a year ago to emphasise the current (and lingering) policy dilemma for the country and government: deflation.
The 2% plus fall in headline inflation last month marked the 8th month in row that Japan has seen deflation at the retail level.
Producer prices have been weaker for months as well as falling commodity prices and the stronger yen slash the landed prices of imports from oil, gas, to coal, iron ore, copper and wheat.
Unemployment hit 5.1% in October, a long way from the 5.7% peak in July.
The ratio of vacancies to applicants edged down as well.
But the rising value of the yen (it hit a series of 14 year highs against the US dollar late last week, and closed around 86.5 yen to the dollar) remains the most immediate concern for an increasingly nervy Japanese government now worried that the improvement in exports will be halted.
Household spending and exports did better than expected in October.
Household spending rose 1.6% from a year ago.
But ongoing price deflation remains a big and growing concern after consumer prices fell at a near record pace in October.
Consumer prices, excluding fresh food fell 2.2% in October from the same month in 2008, compared with a 2.3% drop in September.
Tokyo core consumer prices slumped 1.9% this month, from a year earlier, today’s report showed.
Figures for the capital city are released a month earlier than nationwide data, making them an advanced indicator of the full month national price trends.
Consumer prices, excluding energy and food, fell 1.1% in October from a year earlier.
More than $US230 billion in stimulus spending from the national government has stabilised the Japanese economy, as has the rebound in China, which has stimulated demand for Japanese cars, steel and electronics goods.
The Bank of Japan last month predicted core prices will keep falling through the financial year ending March 31, fiscal 2011 even as the economy expands.
Official interest rates are being maintained at 0.1%, but deflation means the real rate is closer to 2%, without the activity in the economy to justify rates at that level.
Falling wages and a still sluggish employment market are discouraging consumer spending and prompting companies to cut prices to attract customers.
The recovery in exports has helped the world’s second-largest economy grow in the past six months after four straight quarters of contraction.
But the Japanese economy is no larger than it was back in 1992 in nominal terms.
The Bank of Japan sees deflation easing, but slowly.
Inflation will be a negative 1.5% in the March 2010 year, rising to 0.8% in the 2011 year and 0.4% in the 2011-2012 year.
