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Japan approves another stimulus package to combat deflation and strong Yen

Saturday, November 27th 2010 - 13:22 UTC
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Prime Minister Nato Kan: jobs and helping small businesses boost consumption Prime Minister Nato Kan: jobs and helping small businesses boost consumption

Japan's parliament has passed a stimulus package worth about 61billion US dollars, designed to kick-start the country's fragile economic recovery. The government had already introduced several stimulus packages.

The stimulus was designed to create jobs, Prime Minister Nato Kan said, through measures to help small businesses and boost consumer spending.

Earlier, figures showed that Japanese consumer prices fell for the 20th month in a row in October.

The vote in favour of the latest stimulus measures represents a victory for the government, which has struggled to get the package through parliament.

The move is in marked contrast to European governments' policies, which are focusing on cutting spending to secure growth. Japan has been struggling with weak growth, a high Yen and deflation.

The core consumer price index fell by 0.6% in October 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.

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.

Categories: Economy, International.

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