Japan price rise ends deflation

Japan's economy seems to be continuing on an upward path

Japanese consumer prices rose in June, underlining confidence that the world's second-largest economy has emerged from a long period of deflation.

A separate report showed that retail sales also increased in June.

There had been worries - often voiced by the government - that the Bank of Japan's first rate rise in six years would stall the economic recovery.

Analysts said that despite continuing problems in the labour market, Japan's economy was improving steadily.

"The data further confirmed that the economy is surely crawling out of deflation," said Naoki Iizuka, an economist at Dai-ichi Life Research Institute.

Two-pronged

Consumer prices rose by 0.6% in June from a year earlier. It was the eighth month in a row that prices have grown, the statistical bureau said.

Retail sales gained by 0.4% in June, suggesting that domestic demand was continuing to recover despite the increase in borrowing costs.

Japanese consumers now seem more willing to spend their cash

These figures have eased fears about the effect of higher borrowing costs after the Bank of Japan raised interest rates from 0% to 0.25% earlier this month - its first increase in almost six years.

One of the main problems that has faced Japan's earlier attempts at recovery has been the reluctance of consumers to spend, because of fears about their job prospects and an unwillingness to take on debts or use savings.

While export sales have been strong, they have not managed to generate enough momentum to lastingly pull Japan out of its slowdown.

Analysts said there were increasing signs that companies and consumers were becoming more optimistic about their prospects.

"The economy is gradually but definitely moving upward," said Economics Minister Kaoru Yosano.

Willing to work

One area of concern has been a lack of job creation, and a government report published on Friday showed that the unemployment rate rose to a seasonally adjusted 4.2% in June, up from 4% in the previous month.

Analysts played down the figure, and pointed instead to a Labour Ministry measure that showed there were 108 jobs for every 100 workers seeking employment in June.

"We are still in a general recovery phase," said Junichi Makino, an economist at Daiwa Research Institute.

"Data naturally show temporary swings but none of the swings shown today is major enough to indicate a shift in the ongoing trend," he said.