November 15, 2017 / 7:57 AM / a year ago

Japan government analysis sees economy closer to vanquishing deflation

TOKYO (Reuters) - Recent positive economic signs suggest Japan is breaking out the grip of deflation that has stunted growth for years, according to a government analysis obtained by Reuters that also cautions about the continued drag on growth exerted by paltry wage hikes.

Vanquishing deflation, or a state of falling prices that has weighed on Japan for more than 15 years, has been among the top goals for the Bank of Japan and Prime Minister Shinzo Abe since assuming power in late 2012.

The analysis, to be submitted Thursday by the Cabinet Office to Abe’s top economic advisory panel, marks the first time a government analysis has said that Japan may be approaching an end to deflation, according to a government official who asked not to be named.

The draft highlights four factors that suggest deflation is ending: an improvement in the demand-supply gap, record corporate profits, labor shortages and a moderate increase in wholesale prices.

Japan’s consumer price index has been rising this year – it increased 0.7 percent in September from a year earlier for the ninth straight monthly increase - but CPI is just one of several indicators used to determine whether deflation has ended.

The report also says weak wage hikes remain an obstacle to achieving higher growth in Japan.

Abe has urged companies to raise wages 3 percent in this coming spring’s annual wage talks, where companies and unions negotiate a wage increase for employees, but a recent Reuters poll shows that most companies will keep wage hikes to between 2 and 2.5 percent. (nL3N1NJ0SP)

Reporting by Takashi Umekawa; Editing by Malcolm Foster & Shri Navaratnam

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