Japan Sees Deflation Deepen

  More evidence of the continuing strains & #160;in the Japanese economy.While exports remain mired in a rut and off 36% on a year ago, figures out yesterday showed a sharp worsening in consumer price deflation.Figures for August showed that & #160;consumer prices fell at a record rate in August.Excluding fresh food, Japanese consumer prices fell 2.4% in the year from August 2008, & #160;topping the previous month's 2.2% drop.The so-called & quot;core-core & quot; consumer prices, which exclude fresh food and energy prices, fell 0.9% in August, unchanged from July.Deflation only disappeared from the Japanese & #160;economy & #160;in 2005 and its re-appearance and deepening is starting to raise fears the economy may slide as & #160;consumers and companies cut back their spending in anticipation that prices will keep falling.Falling oil and other commodity prices are helping push consumer prices lower, but the rising yen, which jumped to new highs on Monday, is & #160;adding to the lower contract prices for the likes of coking and thermal coal and iron ore, plus oil and other & #160;imports. & #160;The yen & #160;has risen 4% this month and & #160;hurting exporters as well. It is up by 8% this year so far.Figures out later today are expected to confirm that the country's unemployment remains near post war high of 5.8%. Job vacancies are also expected to fall.As well, figures on wages for August are also expected to show another month of decline.With this background, it's no wonder Japanese consumers & #160;remain very reluctant to spend or think about increasing their spending to stimulate domestic demand, despite the tens of billions of dollars pumping into the economy in stimulus.And yet, many Japanese economists remain confident the economy is in recovery mode: in reality it has only recovered a state of stability and is not growing.Richard Jerram, Macquarie Securities & #160;Chief Economist in Tokyo, told Bloomberg yesterday that he expects prices to keep falling for at least another three years as the country enters a period of & quot;persistent deflation & quot;.Exports fall of 36% in the year to August was a tiny bit better than the 36.5% fall in the 12 months ending July, but in reality was a worse outcome being down 0.7% from July.The stronger yen continues to have an impact as well on the import side.August's imports dropped 41% from a year earlier.The stronger yen is why the value of Japanese exports continues to exceed the value of imports.Exports to China fell 27.6% from August 2008 while shipments to the US dropped 34.4%, the smallest fall & #160;since November (thanks to higher car shipments it seems, under the cash for clunker scheme).Sales to Europe slid 45.9%.Japan's car exports in August plunged 50% from a year ago, while shipments of steel products dropped 43.3%. & #160;  

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