Deflation fears spread in Japan after consumer prices fall at record pace

Record fall in Japan prices fuel deflation fears
Deflation fears spread in Japan after consumer prices fall at record pace

TOKYO (AP) -- Deflation is clawing its way back in Japan, and that's not good news for an economy trying to recover from its worst recession since World War II.

Japan's key consumer price index tumbled at a record pace in May, the government said Friday. The core nationwide CPI, which excludes volatile fresh food prices, fell 1.1 percent from the previous year in the third straight month of decline.

The result marked the biggest fall since the government began releasing comparable data in 1971.

Japan appears to be "heading for another lengthy period of deflation," said Richard Jerram, chief economist at Macquarie Securities in Tokyo.

Lower prices may seem like a good thing, but deflation can hamper growth by depressing company profits and causing consumers to postpone purchases, leading to production and wage cuts. It can also increase debt burdens.

The drop in underlying prices is "set to be persistent" and can lead to various problems for companies and individuals because interest rates will "be too high for prevailing economic conditions," Jerram said in a note to clients.

Japan underwent a destabilizing bout of deflation during the 1990s, and again earlier this decade, when the world's second-largest economy struggled to escape from a real estate and banking crisis.

After the results, Japan's finance minister Kaoru Yosano expressed concerns about a significant slowdown in demand.
"We continue to monitor price movements, and need to carefully implement economic management to avoid...a deflationary spiral," Yosano said at a news conference, according to Kyodo news agency.
With crude oil prices down dramatically from record highs a year earlier, energy and transportation prices fell sharply in May. Fuel, light and water charges were down 3 percent, and private transportation costs tumbled 9.2 percent.
But analysts point to the 0.5 percent decline in so-called "core-core CPI," which excludes food and energy, as a more troubling sign of weakness in underlying prices.
Prices for household durables fell 4.9 percent, and those for clothing slipped 0.5 percent.
The core CPI for Tokyo dropped 1.3 percent in June, suggesting that prices nationwide are headed further south. Prices in the nation's capital are considered a leading barometer of price trends across Japan.
"This is consistent with media reports that large supermarkets are marking such goods down as households turn increasingly defensive amid severe employment and income conditions," said Kyohei Morita, chief economist at Barclays Capital in Tokyo.
Japan's central bank predicts that prices will keep falling for at least two years. In its latest economic outlook report in May, it forecast core CPI to drop 1.5 percent this fiscal year ending March 2010 and another 1 percent the following year.

New jobless claims rise unexpectedly to 627K

New jobless claims rise unexpectedly to 627K
New jobless claims jump unexpectedly to 627,000; continuing claims rise to 6.74 million

WASHINGTON (AP) -- The number of Americans filing new jobless claims jumped unexpectedly last week, and the total unemployment benefit rolls rose to more than 6.7 million.
The Labor Department data released Thursday show jobs remain scarce even as the economy shows some signs of recovering from the longest recession since World War II.

The department said initial claims for jobless benefits rose last week by 15,000 to a seasonally adjusted 627,000. Economists expected a drop to 600,000, according to Thomson Reuters.
Several states reported more claims than expected from teachers, cafeteria workers and other school employees, a department analyst said.
The number of people continuing to receive unemployment insurance rose by 29,000 to 6.74 million, slightly above analysts' estimates of 6.7 million.
The four-week average of claims, which smooths out fluctuations, was largely unchanged, at 616,750.
Economists expect the number of initial unemployment insurance claims, which reflects the level of layoffs, to slowly decline over the coming months as the economy bottoms out.

Stocks open lower after rise in jobless claims
Stocks open lower after surprise increase in last week's jobless claims

NEW YORK (AP) -- An unexpected rise in jobless claims is causing investors to sell again.
The government says new jobless claims rose by 15,000 to 627,000 last week. The market had been expecting a decline. Unemployment affects many drivers of the economy -- most importantly, consumer spending.

Uncertainty about when the economy will turn around, and how fast it will grow when it finally does, have weighed on the market this month. The Dow Jones industrial average remains up 26.8 percent from its 12-year low hit on March 9, but is down about 5.7 percent from a June 12 high.

In the first few minutes of trading, the Dow is down 19 to 8,280. The Standard & Poor's 500 index is down 2 to 898, while the Nasdaq composite index is down 8 to 1,783.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
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ECB Says Euro-Region Banks May Lose a Further $283 Billion

ECB Says Euro-Region Banks May Lose a Further $283 Billion

June 15 (Bloomberg) -- Commercial banks in the 16-nation euro region may lose a further $283 billion by the end of next year as the financial crisis forces them to write off bad loans, the European Central Bank said.

“Hard-to-value assets have remained on bank balance sheets and the marked deterioration in the economic outlook has created concerns about the potential for sizeable loan losses,” the Frankfurt-based ECB said in its June Financial Stability Report today. ECB staff estimates suggest the total amount of potential write-downs over the period 2007 to 2010 “could amount to around $649 billion.” Some $365 billion have already been reported, it said.

Deutsche Bank AG, Germany’s biggest bank, has booked about $14.9 billion in writedowns and credit losses since the U.S. subprime-mortgage crisis began in the middle of 2007, less than $2 billion of which were related to subprime loans. Worldwide losses tied to distressed loans and securitized assets may reach $4.1 trillion by the end of 2010 amid the worst global recession since World War II, the International Monetary Fund said on April 21.

“There is no room for complacency because the risks for financial stability remain high, also bearing in mind that the credit cycle has not yet reached a trough,” ECB Vice President Lucas Papademos said at a press briefing in Frankfurt today. “Policy makers and market participants will have to be especially alert in the period ahead.”

The ECB expects the euro-region economy to contract by around 4.6 percent this year and 0.3 percent in 2010. Inflation is expected to average just 0.3 percent this year, the bank’s latest projections show.

“Banks should be encouraged to take advantage of the governments’ commitments for support and strengthen their capital buffers,” Papademos said. Still, because buffers have been maintained well above the minimum regulatory requirements, euro-area banks “appear to be sufficiently well capitalized to withstand severe but plausible downside scenarios,” he said. Read Article... http://www.bloomberg.com/apps/news?pid=20601087&sid=a9OppHNsK.I4

New jobless claims drop more than expected; retail sales rise for first time in 3 months

New jobless claims drop to 601K; retail sales rise
New jobless claims drop more than expected; retail sales rise for first time in 3 months

WASHINGTON (AP) -- The number of newly laid-off Americans filing jobless claims fell more than expected last week and retail sales grew in May for the first time in three months. But a rise in the number of people continuing to receive jobless aid signaled that an economic recovery is still far off.

The Labor Department said Thursday that initial claims for unemployment benefits fell last week by 24,000 to a seasonally adjusted 601,000. That's below analysts' estimates of 615,000.
Still, the number of people claiming benefits for more than a week rose by 59,000 to more than 6.8 million, the highest on records dating to 1967. The department also revised last week's data on continuing claims, replacing what had been a drop of 15,000 with an increase of 6,000.

That means continuing claims have set records for 19 straight weeks. The data lag initial claims by a week.
Retail sales rose for the first time in three months in May, as a rebound in demand at auto dealerships and gas stations helped offset weakness at department stores. The Commerce Department said retail sales increased by 0.5 percent last month, in line with economists' expectations. It was the largest increase since sales rose 1.7 percent in January following six straight declines.

Excluding autos, retail sales also grew 0.5 percent in May, better than the 0.2 percent gain that economists had expected.
Consumers may be spending a bit more and layoffs may be slowing, but companies are reluctant to hire amid the longest recession since World War II. That makes it harder for the unemployed to find work.
Jobless claims are a measure of the pace of layoffs and are seen as a timely, if volatile, indicator of the economy's health.
The four-week average of claims, which smooths out fluctuations, fell to 621,750, down from a high of about 658,000 in early April. Many economists see the decline as a sign that layoffs have peaked and the recession is bottoming out.
Still, the levels are far above what is customary in a healthy economy. Initial claims stood at 388,000 a year ago. Read Article...
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