Japan drops 'deflation' from report, first in four years

Japan drops 'deflation' from report, first in four years

TOKYO - A key Japanese government economy report on Tuesday dropped the word "deflation" from the text for the first time in four years, but analysts warned the battle against falling prices was far from won.

The cabinet's December report gave an upbeat assessment of the world's third largest economy despite signs of in recent months of a slowdown.

"The Japanese economy is on the way to recovery at a moderate pace," the report said. "Private consumption is picking up. Prices are holding firm."

It was the first time the government report had not used the word "deflation" in its assessment since November 2009 when it acknowledged sustained price falls following the 2008 onset of the global financial crisis.

Last month, the report noted: "Recent price developments indicate that deflation is ending."

"It's realistic to drop the word from the monthly report as downside price pressure is easing steadily," said Hideki Matsumura, senior economist at Japan Research Institute.

"But it is too early to declare an end to deflation," Matsumura said. "It is still uncertain if the two per cent target can be achieved as planned."

Japan's economy has been on course to recovery, responding to a policy blitz by Prime Minister Shinzo Abe that has seen massive easing and fiscal largesse.

Reversing years of falling prices is a key plank, which analysts say is starting to happen, although most agree the target of 2.0 per cent inflation within two years is ambitious.

October figures showed a key inflation indicator rising at its fastest pace since the late 1990s, when Japan began to sink into deflation, a vicious circle in which consumers put off purchases and companies do not invest, further crimping employees' spending plans.

Earlier this month, the Bank of Japan's closely watched quarterly "Tankan" survey showed business confidence has soared to a six-year high, underscoring growing optimism among the country's firms.

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