Falling prices Japan's 'Public Enemy No. 1'


Young believes deflation is Japan's worst enemy and faults the BOJ for not doing enough to turn prices around

Alex Frew McMillan
CNN Hong Kong

TOKYO, Japan (CNN) -- Prices in Japan fell in January for the 28th straight monthly dip, fresh figures show on Friday.

The price data, which shows the core consumer price index (CPI) dipped 0.8 percent from the same time last year, ram home a serious menace facing the world's second biggest economy.

"Deflation really is Public Enemy No. 1, and I think that we all need to evaluate that quite highly," Jeffrey Young, chief economist with Nikko Salomon Smith Barney, told CNN.

The Tokyo figures point to another drop next month. They come out a month ahead of the national statistics and show a 0.9 percent decline in February.

The CPI figures come one day after the central Bank of Japan agreed to increase the amount of Japanese government bonds it buys every month to $7.5 billion.

Analysts say the BOJ buckled to government pressure, essentially to stimulate Japan by pushing more money into the financial system.

But the BOJ resisted a controversial move of setting an "inflation target" for when prices will start to rise. The bank has not specified how and when it aims to combat deflation, which leads to a nasty downward spiral of falling wages, spending, prices, profits and employment.

"It still has not put forward a very clear and unambiguous goal of ending deflation by a date certain," Young said. "That is probably a minimum condition before the numbers start to look better."

No firm deadline for ending drift in prices

The BOJ was virtually obliged to respond in some manner to a government package billed as an anti-deflation rescue plan. Analysts fault the government for failing to do anything substantive, instead choosing to heap pressure on the nominally independent BOJ.

Economists expect the BOJ moves and a package unveiled by the government this week will help only short-term.


Analysts say the government moved to stop a crisis at the banks, but economists think the steps will be short-term

They are helping the stock market on Friday. One step the government took is to tighten rules on short selling, which would drive funds to unwind their positions and temporarily boost the market.

The Nikkei index was up 0.81 percent at 10,673.85 at the noon break. The Topix index of all section one stocks was up 0.46 percent, at 1,018.44.

Tech stocks such as Sony, up 3.13 percent to 6,270 yen, were firing ahead, driving the Nikkei ahead of the broader market.

Jobless rate down

The tide appears to be turning on Japan's record jobless rate. The unemployment rate fell to 5.3 percent in January, when seasonally adjusted, from a revised and unprecedented rate of 5.5 percent the month before.

That's the first time it has dropped in 11 months. But analysts said the January jobless report, put out by the Ministry of Public Management, Home Affairs, Posts and Telecommunications, was actually not all that encouraging.

The main reason the jobless rate fell is that there are fewer people in the Japanese work force, now 66.1 million strong.

The number of people out of work rose again, to 3.4 million, for the 10th increase in a row. The total number of jobs dropped, down 230,000. That was offset by 340,000 people leaving the work force.

Separate figures from the Ministry of Health, Labor and Welfare showed the number of job offers to job seekers held steady.