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​Japanese inflation highest in 23 years

Published time: May 30, 2014 13:12
AFP Photo / Yoshikazu Tsuno

AFP Photo / Yoshikazu Tsuno

Last month Japan's inflation rate hit its highest level since 1991 - 3.2 percent - as the government tries to tackle a 20-year deflationary slump. Experts say Japan should focus on increasing demand, not higher prices, if it wants healthy economic growth.

April data released Friday by Japan reflected the sales tax hike, which rose from 5 to 8 percent.

Japan’s Prime Minister Shinzo Abe introduced the tax increase to boost government revenue by about $48.4 billion (5 trillion yen) in the year until April 2015. It's almost 1 percent of GDP, and will help the country contain its massive quadrillion yen debt - twice the size of the economy.

The latest IMF assessment of Japan’s recovery said the expected export growth would offset the tax hike, as overseas demand should start recovering.

While the so-called “Abenomics” did have some effect, the annual inflation rate still remains below the 2 percent target set by the Central Bank, when the tax hike is factored out.

Experts say stimulating demand should be the focus, as it will provide the investment necessary for the much desired growth. They agree Japan still needs deep, structural reforms to support growth.

"The need for inflation to be meaningful in contributing to a stable and faster growing economy is through demand and not through the input of higher prices," AP quotes Stephan Danninger, the chief of the Asia and Pacific IMF division.

"Near-term risks to the outlook are balanced, but the sustainability of the recovery over the medium term is at risk," the IMF said.

A Japanese government report showed industrial production in the world's third-largest economy fell 2.5 percent from a year earlier. Household spending also decreased by 4.6 percent, compared to March’s rise of 7.2 percent. The unemployment rate remained unchanged at 3.6 percent, the same as a month earlier.

However, some analysts were more upbeat, with Martin Schulz, of Fujitsu Research Institute telling the BBC "both consumer spending and retail sales will start rising in the latter half of the year."

"Consumer spending has declined as expected in April, but this is likely to be minor blip and will not affect the ongoing recovery," he said.