Deflation, Slow Consumer Spending Threatens Japan's Recovery

The Bank of Japan is expected to forecast that the core consumer price index will fall for the fiscal year ending in March 2012, at a rate of at least 0.5%, representing three years of expected deflation and a threat to the country's recovery, reports the The Wall Street Journal.


The Journal says that though Japan remains expensive, signs of deflation can be found in everything from paychecks to the price of electronics.


Citing survey figures from Japanese think thank, Institute of Labor Administration, the Journal says that year-end bonuses paid by 218 large companies listed on the Tokyo Stock Exchange will fall by 13.1% this year, the largest drop at least since 1970. Workers' total cash earnings fell 2.7% in August from a year ago. 


According to the Journal, an extended period of deflation can keep the already-thrifty consumers from spending and companies from investing as they wait for prices to fall further.


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