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Japan consumer prices log first rise in 5 years in 2013

Japanese consumer prices saw their first annual rise for five years in 2013, but the jump was largely driven by soaring energy import bills, dampening hopes that Tokyo is winning its war on stubborn deflation.

TOKYO: Japanese consumer prices saw their first annual rise for five years in 2013, but the jump was largely driven by soaring energy import bills, dampening hopes that Tokyo is winning its war on stubborn deflation.

Friday's inflation data, despite accompanying upbeat figures on jobs, household spending and factory output, show Prime Minister Shinzo Abe and the central bank still have a major job on their hands as they try to drag the world's number-three economy back to life.

The consumer price index, which measures a basket of everyday goods but excludes volatile fresh food costs, rose 0.4 per cent last year, the first annual increase since a 1.5 per cent rise in 2008. In December alone, prices were up 1.3 per cent year-on-year.

However, when food and energy prices were taken out of the equation, prices actually slipped 0.2 per cent in 2013.

Japanese households have seen their electricity bills surge since the 2011 Fukushima atomic disaster led to the closure of the country's nuclear power stations.

The move has led Japan to rely on pricey imported fossil fuels, which have been made more expensive with a plunge in the yen over the past year as Abe and the central bank embarked on an unprecedented spending and monetary easing drive.

A key plank of Tokyo's policy blitz is the Bank of Japan's (BoJ's) 2.0 per cent inflation target, which is deemed crucial to turn around an economy beset by weak consumer spending and tepid business investment.

Japan's improving prospects are closer to a "dim light rather than shining bright", said Takeshi Minami, economist at Norinchukin Research Institute.

"Last-minute demand before the sales tax hike (due in April) could have been much stronger, but the figures show slack growth," he told AFP, adding data showing a fall in the jobless rate were mostly tied to fewer people in the workforce, not a surge in new jobs.

Separate numbers released Friday showed unemployment hit a six-year low of 3.7 per cent in December while there was also a pick-up in factory output and household spending.

But worryingly for Abe, a recent poll by Kyodo News showed nearly three-quarters of Japanese people felt no effects from his economic growth drive.

Critics say he must follow through on structural reforms to the economy, including shaking up labour markets and signing free-trade deals, to generate lasting change.

However, many firms have yet to embrace Abe's call to hike wages ahead of April's sales tax hike, seen as crucial to bringing down an eye-watering national debt but a rise that some fear will derail Japan's budding recovery.

The BoJ's bid for sustained inflation by mid-2015 also looks increasingly unlikely in a country where citizens have become used to falling prices for more than a decade, say growing number of analysts.

"It's not easy to change people's mindset after 15 years of deflation," Meiji Yasuda Life Insurance chief economist Yuichi Kodama told Dow Jones Newswires.

The yen has lost about a quarter of its value against the dollar since late 2012, lifting profits at exporters such as Sony and Toyota, and sparking a stock market rally that saw the Nikkei index surge 57 per cent last year, its best run in more than four decades.

The weaker currency gives exporters more flexibility to lower prices on the televisions, cars and computer chips that they sell abroad.

But after suffering through years of a record-high yen, most firms have not slashed overseas prices, and the now-weaker unit has jacked up Japan's energy costs.

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