Business

Japan moves close to beating 15 years of falling prices

  • 27 December 2013
  • From the section Business
Shoppers at a store in Tokyo
Falling consumer prices made shoppers cautious, putting a brake on Japan's attempts to boost domestic consumption

Japanese consumer prices have risen at the fastest pace in five years, showing government policies to end its deflation problem may be taking effect.

Core inflation excluding food rose 1.2% in November from the previous year, surpassing market expectations.

Japan is now more than half-way towards meeting the central bank's goal of achieving 2% inflation by about 2015.

This has been due to a massive monetary stimulus policy aimed at weakening the currency and spurring more spending.

Bank of Japan (BOJ) Governor Haruhiko Kuroda said earlier this week that policymakers have been looking to break the country's "deflation equilibrium".

Japan has faced nearly two decades of stagnant growth and falling prices because companies and households have held off on spending, based on the assumption that prices will not rise.

"The BOJ's monetary policy differs from that of other central banks in that it focuses on changing public expectations," Mr Kuroda said on Wednesday.

"We're seeing broad improvements in the economy, markets, public sentiment. This is the best opportunity to end deflation."

Market rally

Other economic data released on Friday added to signs that the recovery in Japan is gathering momentum under Prime Minister Shinzo Abe.

Regular wages stopped falling after 17 months of declines, while factory output rose for a third straight month, and retail sales jumped.

Buoyed by positive investor sentiment, the Nikkei stock average hit a six-year high on Friday to close at 16,178.94 points.

The benchmark index has gained about 56% this year, and is headed for its best annual performance since 1972.

The Japanese yen also breached a key level of 105 yen to the US dollar for the first time in five years due to the positive economic data.

Due to the government's money printing programme, the yen has lost a quarter of its value against the dollar so far this year.

This has been a key part of Mr Abe's plan to revive the world's third-largest economy by making the value of its exports cheaper abroad.

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