Japan Vows to Closely Watch Economic Impact of Mideast Conflict

Tokyo, July 24 (Jiji Press)–Japan needs to closely watch the impact of the Middle East conflict on the country’s economy before declaring a complete exit from deflation, a government white paper said Friday. The Japanese economy remains on a private demand-led recovery track thanks to record corporate profits and favorable employment and income conditions, the government said in its annual report on the economy and public finance. The government needs to carefully assess the extent to which the Middle East conflict will exert downward pressure on the real economy before declaring an end to deflation, the report said. The government in 2001 declared that the economy had fallen into deflation after the collapse of asset-driven bubbles. In recent years, the government has indicated that the country is clearly no longer in deflation in light of rising prices. But it has stopped short of declaring an end to deflation, saying it cannot rule out a potential return to the situation. When judging whether the country has got out of deflation, the government looks at the consumer price index, the gross domestic product deflator, supply-demand gaps and the unit labor cost. The CPI rose for the 57th consecutive month in May, driven by factors such as the war in Ukraine and a weaker yen. With many businesses successfully passing on higher costs to customers, the GDP deflator has continued to increase since 2022. The unit labor cost, which measures wages required to produce a certain amount of goods, has risen because of substantial wage increases in recent years. The report said Japan is gradually approaching a phase in which both prices and wages rise. But the output gap remains largely at zero, with the report saying that the government has yet to affirm a sustained rise in demand. Rising prices have weighed on households’ purchasing power, the white paper said. END [Copyright The Jiji Press, Ltd.]