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‘Japan not out of deflation yet’

TOKYO (AFP) ― Japan hasn’t emerged from years of deflation quite yet, the country’s economy minister said Friday, after a sales tax hike sparked a sharp decline in second-quarter growth.

The comments from Akira Amari came two days after fresh data showed the economy suffered its biggest quarterly contraction since the 2011 quake and tsunami disasters as the levy rise slammed the brakes on growth.

Tokyo has been working to reverse years of falling prices that held back the world’s No. 3-economy.

While the plan to usher in lasting inflation has been showing signs of working, Amari said there was still work to do before declaring victory.

“At this moment, it’s too early to declare an end to deflation,” Amari told reporters.

“There are several factors still to see, including the impact of the consumption tax (hike).”
Akira Amari, Japan’s minister of state for economic and fiscal policy (Bloomberg)
Akira Amari, Japan’s minister of state for economic and fiscal policy (Bloomberg)

While deflation may sound like a good thing, it encourages consumers to put off buying goods in the hopes of getting them cheaper down the road, hurting producers and the wider economy.

The 1.7 percent dip in gross domestic product for the second quarter ― or a 6.8 percent contraction at an annualized rate ― gave the clearest picture yet of the impact of the April 1 tax rise.

Economists had warned that the tax hike ― aimed at chopping a massive national debt ― could derail Tokyo’s efforts to turn around the deflation-plagued economy.

The Bank of Japan has set an ambitious 2 percent inflation target for next year.