Page last updated at 06:20 GMT, Friday, 1 May 2009 07:20 UK

Japan moves back into deflation

Cars for export are parked at a Yokohama port, near Tokyo. File photo
Japanese car production has fallen over the past year as exports fall

Japan's economy has fallen back into deflation for the first time in more than a year, new data for March shows.

Gloomy figures also showed that the country's unemployment rate moved to a four-year high of 4.8% in the month.

Meanwhile the number of available jobs in the world's second biggest economy has fallen to a seven-year low.

The latest news comes a day after figures showed industrial output in Japan rose in March by 1.6%, the first production rise in six months.

They don't have a job for us, they're saying 'we'll give you a little money, but don't come back. Bye bye'
Wellington Shibuya

On Thursday the Bank of Japan said GDP would shrink by 3.1% in the year to March 2010, compared to an earlier forecast of 2%, but it has argued that a recovery will begin in 2010.

But in its latest update earlier this week it also warned that consumer prices will fall by 1.5%, pushing Japan into deflation.

Price cuts

The number of unemployed has jumped by 670,000 over the past 12 months, and now stand at their highest level since August 2004.

With more people out of work and falling household incomes, that could push down consumer prices further as companies try to attract people into buying their goods by cutting prices.

The core consumer price index, which excludes volatile prices of fresh fruit, vegetables and seafood but not oil prices, fell 0.1% in March from a year earlier.

The Bank of Japan has forecast two years of deflation, which stalked the Japanese economy in the 1990s.

'Weak consumption'

Analyst Takeshi Minami, chief economist of Norinchukin Research Institute said the price drops will accelerate.

"Deflation will be damaging to the economy. Companies will have difficulty increasing profits, and their effective burden from borrowing money will increase," he said.

"With job conditions worsening, consumption will remain weak. As such, downward pressure from weak demand on consumer prices will continue as a trend."

Annual consumer inflation in Japan hit a decade high of 2.4% in July and August last year.

Action needed

Meanwhile Japan's "core-core" inflation index, which strips out energy and food prices, fell 0.3%.

"As we head into summer, the scale of the fall will increase," said Yoshikiyo Shimamine, chief economist at Dai-Ichi Life Research Institute.

"Some sort of economic policy will be needed to stimulate consumption. The Bank of Japan may also have to really look into doing something to stop price deflation."

On Monday, the government submitted its plans to the Diet for its latest stimulus package, worth 15 trillion yen ($155bn, £105bn).

Car sales fall

Japan has been hit badly by the downturn because worldwide demand has collapsed for its cars and electronics goods.

Vehicle sales in Japan fell 28.6% in April from a year earlier to 166,365, the Japan Automobile Dealers Association said on Friday.

Sales at Toyota, excluding the Lexus brand, fell 32.%, and those at Nissan dropped by 38.7%. But Honda bucked the trend and saw its sales increase by 4%.

The April figures marked the ninth successive month of year-on-year declines.

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