Japan to take deflation concerns to G7

Japan wants to persuade other leading economies to make the fight against deflation a global priority at this weekend's Group…

Japan wants to persuade other leading economies to make the fight against deflation a global priority at this weekend's Group of Seven meeting.

But its concerns are likely to be overshadowed by a looming war in Iraq.

With Japan and many other Asian nations struggling with falling prices, and inflation rates falling in most major economies, Tokyo thinks it can provide a cautionary tale that might also advance its case for a currency revaluation in fast-growing neighbour China.

Japan is concerned that foreign deflation could put further pressure on its own export-reliant economy as it struggles to maintain a sluggish recovery.

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A senior Ministry of Finance official close to pre-G7 talks said deflation would come up when the authorities review global and regional economies but that it may not be mentioned in a communique to be issued after the meeting in Paris on Friday and Saturday.

To arrest falling prices, the Bank of Japan has flooded the money market with liquidity under its "quantitive easing" policy, pushing interest rates to around - sometimes even below - zero.

Yet consumer prices fell below year-ago levels for the 40th straight month in December, fuelling concern that deflation was exacerbating Japan's banking sector woes and subduing spending.

Japanese officials said the G7 could not turn a blind eye since globalisation and the industrialisation of developing countries like China, India and Russia meant the entire global economy would eventually be exposed to deflationary pressure.