July - Deflation continues, Unemployment down

TOKYO — Japan's consumer prices continued to slide while the unemployment rate fell for the first time in six months in July, as mixed data Friday illustrated the headwinds facing a fragile recovery.
Japan's core consumer price index fell 1.1 percent in July from a year earlier, government data showed, marking the 17th straight month of decline as Japan remains mired in deflation.
The core consumer price index, which excludes volatile fresh food items, was in line with market expectations, according to a Dow Jones Newswires poll of economists.
The latest consumer price data will raise further questions over the durability of Japan's fragile recovery, which has come under further pressure from the effects of a strong yen and uncertainty over the global economy.
It will also challenge the government's stated goal of ending deflation in the fiscal year starting April 2011, as it piles pressure on the Bank of Japan to take further steps to support the economy.
The central bank has long kept its key rate at a rock-bottom 0.1 percent and analysts say it has little room for further manoeuvre.
"I hope the BoJ will do its utmost," Vice Finance Minister Motohisa Ikeda said Thursday. "Exiting deflation remains the most important goal for us and I am also very concerned about the recent yen gains."
The current strength of the yen, which this week hit 15-year highs against the dollar, threatens exporters as it erodes repatriated profits and makes their goods relatively more expensive overseas.
It also makes imports cheaper, helping to keep prices low. Persistent deflation prompts consumers to defer purchases in the hope of further price falls and dissuades corporate capital spending.
In one glimmer of light, however, Japan's unemployment rate edged lower to 5.2 percent in July, its first fall in six months, dropping by 0.1 percentage points from June, government data showed Friday.
The July figure was slightly better than market expectations of 5.3 percent, the previous month's level.
In separate data, the government said that household spending in July was up 1.1 percent from a year ago, but down 0.4 percent from June, illustrating a soft domestic demand picture.
Japan is set to outline fresh stimulus measures in the next few days, the government has said, with recent weak gross domestic product growth of an annualised 0.4 percent in the second quarter pointing to a slowdown.
On Wednesday data showed Japan's export growth slowed for a fifth straight month in July, as uncertainty over the global economy weighed on a sector crucial in offsetting weak domestic demand.
Japanese shares opened lower Friday following the release of the data, with the Tokyo Stock Exchange's Nikkei index losing 95.01 points or 1.07 percent to 8,811.47 points.

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