http://www.ft.com/cms/s/0/6beff668-27d9-11de-9b77-00144feabdc0.htmlJapan’s wholesale prices registered their largest drop for almost seven years last month, stoking fears that the world’s second-largest economy was falling further into deflation.
The domestic corporate goods prices index (CGPI), which reflects what businesses pay for raw materials and energy, fell much more than expected. It posted a 2.2 per cent year-on-year decline as the price of a range of products fell, from non-ferrous metals to steel, according to the Bank of Japan.
This was the biggest fall in the CGPI since May 2002, and follows the BoJ’s quarterly tankan survey this month, showing business confidence down 34 points to a record low of minus 54.
The CGPI figures add to mounting evidence that the Japanese economy is becoming one of the biggest casualties of the global financial crisis, in spite of a financial sector that has been relatively shielded from subprime losses.
In the last quarter of last year, Japan’s real gross domestic product fell 12.1 per cent – the largest proportion among developed economies.
In February, real GDP fell 0.1 per cent in an unprecedented seventh consecutive month of decline.
Against mounting evidence of a sharp recession, the government has faced growing calls for action to create jobs and stimulate domestic demand.
“The reason why domestic demand isn’t growing is because disposable income has not risen,” Tsuyoshi Takagi, president of the Japanese Trade Union Confederation, said on Monday.
The government unveiled a Y15,400bn ($154bn, €115bn, £104bn) stimulus package on Monday which, it said would boost GDP 2 per cent in the fiscal year starting this month and create up to 500,000 jobs.
The package, which follows an earlier stimulus of about 1.4 per cent of GDP, is “a large, meaningful boost to demand,” said Richard Jerram, chief economist at Macquarie Securities in Tokyo.
Share prices continued their upward trend on Monday as investors took cheer from the potential impact of the stimulus plan.
However, concerns are growing that Japan’s home-made deflation is set to strengthen, before the positive impact of the stimulus kicks in, with analysts expecting price falls to gather pace.
The CGPI has now fallen for three consecutive months, while the corporate services index, reflecting the price that companies pay for transport and other services, has been on a decline since November.
Price falls are broadening across the economy as demand has slumped amid the global downturn.
“Looking at the shape of the domestic economy, home-made deflation is set to strengthen,” said Barclays Capital in a note.
Consumer prices are also expected to fall as job and wage cuts reduce the level of households’ discretionary spending.
Wages fell for nine months to February, while unemployment rose to a three-year high of 4.4 per cent. The latter is widely expected to climb above 5 per cent