Japan's consumer prices slid for the 20th straight month in October, data showed, underscoring fears of a delayed exit from crippling deflation as economic recovery loses steam.
While the pace of the year-on-year decline eased compared to previous months, analysts on Friday said this was due to one-off effects such as a hike in cigarette prices after a tax rise that month, with weak domestic demand still haunting the economy.
Japan's core consumer price index fell 0.6 percent in October year-on-year, compared to a 1.1 percent fall in September, as the deflation-mired economy laboured under a strong yen, which tends to harm its exporters.
Japan has been stuck in a deflationary spiral since its asset bubble burst in the early 1990s, and consumer spending has never fully recovered to become a major driver of growth.
A stronger yen exacerbates price declines as it makes imports cheaper.
"Even though the pace of the fall in prices slowed by 0.5 percentage points from the previous month, this was not due to an improved demand-supply balance", said Atsushi Matsumoto, economist at Mizuho Research Institute.
Data issued Thursday showed Japanese exports grew at their slowest pace of the year in October -- further evidence that the country's trade-reliant recovery is ebbing.
"Weak growth in exports could worsen corporate earnings, thus lowering household incomes to dampen consumer demand," said Matsumoto.
The latest price data "boils down to one-off effects" such as the tobacco price hike, he said. "Exit from deflation will be slower than previously thought."
Continued price falls undermine Prime Minister Naoto Kan's efforts to overcome deflation in the next fiscal year and work towards reining in the world's biggest public debt, which amounts to 200 percent of GDP, analysts said.
Deflation, a general fall in prices, has remained a challenge for Japan as it cuts into corporate profits and leads consumers to delay purchases while awaiting further price drops.
The Bank of Japan said last month that Japan's core consumer price index would turn to a positive figure during the fiscal year 2011, starting next April.
"We have to make efforts toward the government's goal of having a positive (CPI) figure in the next fiscal year," economy minister Banri Kaieda told a regular news conference Friday.
But analysts warn a return to inflation will take longer.
Matsumoto said he expects the positive figure to come only in fiscal 2012 due to weak consumer demand and a subdued appetite for corporate investment on the backdrop of slowing export growth.
The core consumer price index for Tokyo -- the leading indicator of nationwide prices -- in November fell 0.5 percent from a year earlier, the internal affairs ministry said.
Taro Saito, economist at NLI Research Institute, said "the overall picture is that falls in prices are improving but not worsening.... But the pressure from the government on the Bank of Japan to take further monetary easing measures will continue."
Parliament is likely to pass a supplementary budget later Friday to finance an economic stimulus plan worth 5.1 trillion yen (61 billion dollars) featuring job programmes, welfare spending and schemes for small businesses and infrastructure, local media reported.
Matsumoto of Mizuho said the extra budget "is surely a positive factor on the economy but not enough."
Japanese shares closed 0.40 percent lower on Friday. The benchmark Nikkei index has however stayed above the psychologically key 10,000 mark in recent sessions, buoyed by expectation-beating company earnings.
http://news.yahoo.com/s/afp/20101126/ts_afp/japaneconomy_20101126125159
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