Consumer prices in Japan fell at a record pace in December, prompting the government to reiterate its call for the central bank to step up its fight against deflation.
While year-on-year fall in core prices slowed from 1.7% in November to 1.3% last month, the so-called "core-core" consumer price index, which excludes fresh food and energy prices, dropped 1.2% in December from a year ago, the biggest decline since records began in 1971.
The falling trend is expected to continue after preliminary figures have shown that core prices in Tokyo have fallen 2% in January while "core-core" prices have dropped 1.4%.
The latest CPI figures are likely to increase political pressure on the Bank of Japan to take further action. The bank on Tuesday kept rates on hold at 0.1% for the 13th consecutive month while its policy board adjusted its inflation forecasts to -0.5% in 2010 and -0.2% in 2011, from -0.8% and -0.4% respectively.
The central bank said that deflation would be weaker "due mainly to the rise in crude oil prices" while saying that "substantial slack in the economy as a whole" was weighing on the consumer price index.
"I expect the BoJ to support the economy by guiding monetary policy appropriately and flexibly while keeping close contact with the government, said Naoto Kan, finance minister, on Friday.
"Virtually every measure showed deflation becoming more entrenched during the month," said Matt Robinson, economist at Moody's Economy.com.
Standard & Poor's warned earlier this week that it might cut its sovereign debt rating on Japan for the first time since 2002, saying that stronger action against "fiscal and deflationary pressures" could be needed to avert what would be a deeply damaging downgrade.
But Friday also saw more positive news for the economy, with separate reports showing that unemployment rate fell from 5.2% in November to 5.1% last month, while price-adjusted household spending rose for a better-than-expected 2.1% from a year earlier.
Industrial output rose 2.2% in December from the previous month, the first time output had grown for 10 consecutive months since June 1996 to March 1997.
Separately, Singapore's unemployment rate fell to a seasonally adjusted 2.1% in the last quarter of 2009, compared with 3.4% in the previous quarter.
