Prices head south in Japan

By staff and wire reports

TOKYO, Japan -- Japan's consumer price index slipped for the 21st month in a row for June, new data showed Friday.

The core CPI dropped 0.6 percent in June, over a year ago, the Ministry of Public Management, Home Affairs, Posts and Telecommunications said.

The price of goods, particularly for clothes and household items, turned lower. Friday's figures show the country is still mired in deflation.

While the prospect of prices going down sounds good to most people, their decline shows how Japan's long-term problems are hurting confidence.

Consumers are getting increasingly tight-fisted, shifting to cheaper products as Japan battles a likely recession.

And that's not good news for the ruling coalition, with Japan going into an election on Sunday.

Another drop likely

The figures for June were stronger than the previous month. Japan's CPI posted its biggest drop in May, when it crunched 0.7 percent lower.

But interest rates that are near zero have done nothing to encourage consumer spending.

The national numbers will likely drop again next month. The Tokyo CPI, which comes out a month before the national numbers, fell 0.9 percent in July.

"The bottom line is that substantial downward pressure on consumer prices shows no sign of abating," J.P. Morgan said in a report.

Japan posted a 2.7 percent drop in retail sales for June on Thursday, despite a heatwave that some hoped would lead to greater spending.

The country's apparently endless economic slump and recent stock selloff have started to hurt the popularity of Japanese Prime Minister Junichiro Koizumi.

The maverick Koizumi swept to power, with promises of an outsider's approach and radical reform. But experts say Japan's economic problems have started to cut into that early optimism stemming from his April election.

The latest polls show his cabinet's popularity has dipped to 69 percent from a record 85 percent earlier this year.