Monday, September 05, 2005

Bank of Japan deputy upbeat on end of deflation

Bank of Japan deputy upbeat on end of deflation
Bloomberg News

TOKYO: The Japanese deflation cycle that has lasted more than seven years may be close to an end, according to Toshiro Muto, the deputy governor of the Bank of Japan.

"The possibility is gradually increasing that we will see a stable increase in core consumer prices over the next fiscal year that starts April 1," Muto said in an interview on Thursday.

He did not rule out the possibility that sustained price gains may start as early as the end of this fiscal year.

The bank has pumped cash into the economy and held borrowing costs at almost zero in an effort to overcome deflation, which has eroded corporate profits, discouraged consumers from spending and limited economic growth to an average of 1.3 percent in the past five years.

Sustained gains in consumer prices and a lasting recovery would meet conditions needed for the bank to change its monetary policy.

Paresh Upadhyaya, a currency portfolio manager at Putnam Investments in Boston, said that "if deflation were to end, that would be a sign Japan's economy is gaining momentum, and it's becoming more of a player in the global economy as another source of growth for exports."

The Japanese economy expanded at an annual 1.1 percent pace in the second quarter, led by increases in consumer and capital spending. It was the third consecutive quarter of growth.


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