According to the latest business news from BBC World, Japanese has reiterated its commitment to beating deflation, with the country’s finance minister setting a target for price rises of 1%. Naoto Kan said the Bank of Japan shared this “policy goal”. Bank’s governor Masaaki Shirakawa said he was “serious” about beating deflation, but said it would take time.
With the latest figures show consumer prices in Japan fell by 1.2% in December, the biggest drop since the current consumer price index began in 1970. Mr. Kan said that “I personally would like to see growth of around 1%, or perhaps even a little more.” But he said it was up to Japan’s central bank to decide how best to achieve this goal.
Interest rates in Japan are just above zero, meaning there is little room to cut rates to stimulate growth. Analysts also said there is little appetite in Japan for further quantitative easing – or creating money to pump into the economy – as the policy proved unsuccessful in beating deflation in the past.
Basically, deflation depresses demand, therefore economic activity because consumers tend to put off major purchases as they know that prices will become cheaper in the future. But, despite deflation, figures released on Monday showed that Japan’s economy grew by a better-than-expected 1.1% in the final quarter of last year. This is the equivalent of an annualized increase of 4.6%.
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