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Bank of japan predicts continued deflation

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Bank of Japan officials predict continued deflation in 2004

Japan's deflationary trends will continue through the next business year, as the consumer price index (CPI) will probably stay below zero, the Bank of Japan (BOJ) said on Monday.

In talks with the Mainichi, BOJ officials said they would mention the continuation of deflationary trends in a biannual prospect report on the economy to be released Friday.

In response to deflation, the BOJ will stick to its policy of maintaining interest rates at levels near zero in a bid to prop up the economy, the officials said.

They pledged to maintain the zero interest policy until the CPI reaches zero percent or above, and said that recent economic data show that both company profits and stock prices have risen due to expectations that the downward trend would come to an end.

Japan's CPI also climbed to minus 0.1 percent in August, so private sector sources expect prices to go up within 2003.

But the BOJ officials believe that the deflationary trends on prices, excluding those of perishable foods, would continue in fiscal 2004 for its seventh straight year since 1998.

They base their belief on the fact that hikes in cigarettes tax and increased coverage by individuals of medical costs triggered the reduction of price falls seen in August.

They also argue that rice price increases likely to occur later this year because of a bad harvest during the summer would help boost the CPI, if only temporarily.

In the biannual report, nine BOJ Policy Board members mention their individual prospects for the economy. The overall prospect for the CPI in fiscal 2004, after excluding two extreme and polarized opinions regarding the indexes, will probably stay below zero, the officials said.

Their prospects for the CPI in fiscal 2003, published in the April economic report, was minus 0.4 to minus 0.5 percent. (Mainichi Shimbun, Japan, Oct. 27, 2003)

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