By Michiyo Nakamoto in Tokyo Published: January 26 2001 17:22GMT | Last Updated: January 26 2001 17:32GMT Consumer prices in Japan last year posted the largest fall in 30 years, raising concerns about the extent of deflationary pressures in the Japanese economy. The consumer price index fell 0.7 per cent in 2000, the steepest decline since the government began compiling the index and the first time it has fallen for two consecutive years. The CPI fell 0.3 per cent in 1999. The weakness of consumption in Japan was further highlighted by a fall in December retail sales, which declined 0.9 per cent year-on-year for a record 45-month decline. Retail sales for the year were down 1.7 per cent, in a fourth consecutive annual decline. The figures have raised concerns about the outlook for the Japanese economy, at a time when the US, Japan's largest export market, is also weakening. They are likely to raise calls for the Bank of Japan to relax monetary policy, a step it has resolutely refused to take. Taro Aso, state minister in charge of economic and fiscal policy, warned that the fall in prices did not reflect productivity improvements as the Bank of Japan contends. "It's weakening consumer demand that we should be concerned about," he said. "Japan is the only major country that faces price falls," he said. Analysts said the fall in prices reflected both sluggish demand and the more positive impact of a "supply shock" in which deregulation and more flexible procurement have led to sharply lower prices in goods as well as services. A McDonald's half-price hamburger campaign and the storming success of Fast Retailing, a discount casual clothes retailer, were cited as evidence of such positive supply-side changes. Japan is seeing the emergence of completely different business models, said Takehiro Sato, economist at Morgan Stanley Dean Witter. "It is questionable whether this can be called deflationary," he said. "A lot (of the price fall) is due to deregulation, so it's become more efficient," said Michael Naldrett, chief economist at Dresdner Kleinwort Wasserstein in Tokyo. Although there were some signs the fall in consumer prices was beginning to ease in the past few months, there is also concern that consumer spending could weaken further as the stock market remains depressed and the outlook for the world economy darkens. Furthermore, there is the risk of deflationary pressures being imported as the US and other economies weaken. This danger calls for an easing of monetary policy, some analysts believe. from FT.com _______________________________________________ Crashlist website: http://website.lineone.net/~resource_base
