Japan government considers declaring end to deflation

TOKYO (Reuters) – Japan’s government is considering declaring an end to deflation in the wake of rising prices, Kyodo news agency reported, citing sources with knowledge of the matter.

The government will make a decision after determining whether annual labour-management wage talks due March 13 will turn out strong enough to offset price hikes and also consider the outlook on price trends.

If realised, it will mean Japan would break free from deflation that put a drag on economic activity for well over two decades, the sources said.

The government acknowledged that Japan’s economy was in deflation for the first time in 2001, with the nation struggling for much of the past two decades to break a vicious cycle of lower corporate profits, tepid wages and weak private consumption.

In judging an end to deflation, the government would scrutinises a broad range of indicators, such as consumer prices, unit labour costs, output gap and GDP deflator, Kyodo said, citing the sources.