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Japan's deflation continues as prices fall

Japanese consumer prices fell for the 20th month in a row in October, further evidence that the government is struggling to combat the deflation that is undermining economic recovery.

The core consumer price index fell by 0.6% compared with a year earlier, official figures showed.

This was a slight improvement on the 1.1% price falls seen in September.

Deflation is particularly damaging to economic growth as consumers delay purchases until prices fall further.

The improvement from September does not reflect any improvement in consumer demand, analysts said.

"Even though the pace of the fall in prices slowed by 0.5% percentage points, this was not due to an improved demand-supply balance," said Asushi Matsumoto at the Mizuho Research Institute.

Instead, he said, it was down to one-off factors, such as a hike in cigarette prices.

This means that "exit from deflation will be slower than previously thought," Mr Matsumoto argued.
Weak exports

Japan is also struggling with a strong yen, which makes exports more expensive to overseas consumers.

Figures released on Thursday showed export growth slowing for the eighth month in a row, with exports to Europe falling for first time for almost a year.

Analysts say weaker exports could also contribute to reduced consumer demand.

"Weak growth in exports could worsen corporate earnings, thus lowering household incomes to dampen consumer demand," Mr Matsumoto said.

BBC News

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