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Last Updated: Friday, 26 May 2006, 07:35 GMT 08:35 UK
Japanese prices continue to rise
Japanese shopper
Japanese shoppers are starting to spending again as wages rise
Japanese consumer prices were higher in April than a year ago, the sixth month in a row they have risen, lifting hopes that deflation has been shaken off.

Government figures showed core consumer prices, which do not include fresh food costs, rising 0.5% from a year earlier.

The main drivers of price inflation were energy and raw material costs.

Many analysts are now forecasting that the pick up in price growth will prompt the Bank of Japan to start raising interest rates over the summer months.

"The data reaffirmed our view that there is a high possibility that the Bank of Japan could start raising rates in July," said Naoki Iizuka of the Dai-Ichi Life Research Institute.

"Wages have stopped falling and prices of raw materials are rising. We can now see how growing demand in the job market is being reflected in rises in prices," he explained.

Still a way to go

Though the Japanese economy is on a steady recovery track, my view that Japan is not out of deflation hasn't changed
Sadakazu Tanigaki, Japan's Finance Minister

Japan, the world's second-biggest economy, has endured a decade of stagnating prices that have eroded the value of wages and depressed growth.

The Bank of Japan slashed its interest rates to virtually zero and has pumped cash into the country's financial system in an effort to get things motoring.

While it is still too early to talk of a cast-iron, lasting recovery, there are increasing signs that Japan is putting its difficult times behind it, analysts said.

Helping buoy the economy has been an improved outlook for exporters and a pick up in domestic demand.

As a result, investors have been buying into Japanese stocks, pushing the benchmark Nikkei index to five-year highs.

However, Japan's Finance Minister Sadakazu Tanigaki urged caution.

"Though the Japanese economy is on a steady recovery track, my view that Japan is not out of deflation hasn't changed," he said.

"But I can say price conditions are improving."

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