Japan may soon say deflation end in sight

TOKYO, July 1: Japan is likely to announce later this month that the nation's deflationary situation will be over by the end of the year, the daily Yomiuri Shimbun reported on Saturday.

Financial markets have speculated that Prime Minister Junichiro Koizumi may declare that deflation had been eradicated before he steps down in September.

A raft of improving data has reinforced views that the economy is recovering and that the Bank of Japan (BOJ) may raise interest rates as early as this month.

Sources quoted by the Yomiuri said the government is working towards making a de facto declaration of the end of deflation at a meeting of economic ministers on July 19.

However, since several key economic indicators have yet to improve, the declaration is likely to avoid saying deflation is completely over but rather say the nation will escape from the deflationary situation ''soon,'' the paper added.

Officials could not be reached for comment.

Japanese core consumer prices rose firmly in May while the jobless rate fell to an eight-year low, reinforcing the view that the BOJ may raise interest rates as early as its next policy-setting meeting on July 13-14.

However, Finance Minister Sadakazu Tanigaki said on Friday he felt deflation was not over yet and he wanted BOJ monetary policy to keep supporting the economy.

REUTERS