consumer prices in Japan fell for a 20th month in October

consumer prices in Japan fell for a 20th month in October, with the decline of moderation after the government raised taxes on snuff.

Consumer prices excluding fresh food fell 0.6 percent from a year earlier after falling 1.1 percent in September, the statistics bureau said today in Tokyo. The government's October 1 tax increase, which boosted the price of cigarettes by a third, added 0.28 percentage points to the figure, the office said.

Entrenched deflation is weighing on the economy at risk for this quarter after a rise of the yen to a 15-year high export growth undermined. The currency's 11 percent advance against the dollar this year has also exacerbated the price declines by reducing import costs, adding that in the case of the Bank of Japan to provide more monetary stimulus.

"Deflationary pressures have eased slightly, but it is unclear whether this trend is sustainable," said Yoshimasa Maruyama, economist at Itochu Corp. in Tokyo. "The economy will probably contract this quarter and the strong yen is also going to start pushing down prices."

October fall in prices matched the median forecast of 28 economists surveyed. An increase in insurance rates also boosted the index by one percentage point to 0.15, the office said.

The yield on the government's benchmark 10-year note rose two basis points to 1.175 percent late morning in Tokyo, the highest since Sept. 7.

Persistent pressure

"There are still a lot of slack in the economy that is continuing to exercise downward pressure on prices," although the drops were smoothed Yoshiki Shinke, economist at Dai-Ichi Life Research Institute in Tokyo , said before the report. "It is difficult to predict when prices will be positive," he said, predicting that GDP will contract this quarter.

Pressure for the Bank of Japan to do more to fight deflation has grown, both lawmakers and the opposition calls for legislation that would give politicians more control over monetary policy.

A group of lawmakers from the ruling Democratic Party of Japan said this week that the bank should adopt an inflation target for the eradication of lower prices and help boost employment. Members also want to review a law guaranteeing the independence of the central bank. His party, an opposition group, last week introduced a bill to Parliament calling for a revision to incorporate a target.

Political pressure

"Despite the possibility of an effective review of the law is thin, the actions of politicians to discuss the question in itself have some influence on monetary policy," said Naomi Hasegawa, a fixed income strategist at Mitsubishi UFJ Securities Morgan Stanley Co. in Tokyo.

Bank of Japan policy makers last month expected core prices, which exclude fresh food, start to rise in the year from April 2011. The bank last month pledged to keep "virtually zero interest rates to a point of view arises from sustained price increase. Board members say they consider inflation stable in a positive range of up to 2 percent, with the median estimate of 1 percent.

falling prices undermine an economy by eroding corporate profits, putting pressure on wages, and making debts harder to repay. Deflation has affected Japan for more than a decade, helping you to be overtaken by China in the second quarter, the second largest economy in the world after the U.S.

A government report today showed Japan's separated values fell to the ground 87 of 150 prime locations across the country, or 58 percent of monitored sites, compared with 70 percent three months ago.

Yen Advance

Some board members said that falling prices could damp inflation expectations of long-term business and homes, bank records October 28 meeting this month showed. The yen's advance reduced prices, making imports cheaper and this dynamic "orders of caution," said Seiji Nakamura, a board member of the Bank of Japan, in a speech yesterday.

Seiyu Ltd., a supermarket operator owned by Wal-Mart Stores Inc. this week began to discount 3200 items, including food, clothing and household goods up to 60 percent. Daiei Inc., a supermarket operator, also reduced prices of household goods up to 25 percent.

A review of the base year for calculating consumer prices scheduled for August 2011 also likely that the Japanese lower prices. The review of the last government pushed down prices by about 0.5 percentage point.

"The consumer price data will likely be pressed for the review next year is more than the last time," wrote economists at BNP Paribas, Ryutaro Kono and Azusa Kato in a report. "The Bank of Japan out of its virtual zero rate policy seems quite far."