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Japan's Consumer Prices Slide, Adding to Risk of Slower Growth

Japan’s consumer prices fell for a 17th month and household spending rose less than forecast, driving stocks lower on concern that the nation’s economic recovery is faltering.

Consumer prices excluding fresh food declined 1.1 percent in July from a year earlier, the statistics bureau said today. Household spending rose 1.1 percent, lower than economists’ estimates for a 1.5 percent gain. The unemployment rate fell for the first time in six months, a separate report showed.

The Nikkei 225 Stock Average dropped as the data added to evidence that a strengthening in the yen to near a 15-year high is deepening deflation. Prime Minister Naoto Kan is preparing a further stimulus package and his government is pushing the Bank of Japan to ease monetary policy to revive growth</a>.

“With the yen climbing and stocks breaking 9,000 we’re going to see downward pressure on consumer prices,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo. “The government has been slow to respond to the yen, it needs to act in a decisive and swift manner.”

The yen traded at 84.34 as of 10:03 a.m. in Tokyo today, from 84.31 before the reports were released. The currency headed for a weekly gain against all its major counterparts on concern Federal Reserve Chairman Ben S. Bernanke will signal further monetary easing when he speaks today. The Nikkei 225 fell 0.5 percent to 8,860.63.

The ruling Democratic Party of Japan called on the central bank to “speedily take further steps” in a stimulus package proposal presented to Kan in Tokyo yesterday. Vice Finance Minister Motohisa Ikeda, a DPJ lawmaker, also said the bank needs to “do everything it can” to tackle deflation.

‘Appropriate Action’

Finance Minister Yoshihiko Noda this week said Japan stands ready to take “appropriate action” to stem the yen’s gain, his strongest comment on the currency to date. The government needs to consider selling the yen to protect the recovery, Morita said.

“Regardless of whether intervention will actually be effective, the government needs to show that it has some weapons,” Morita said. “It needs to demonstrate its willingness to act by intervening aggressively and decisively.”

Labor data were one of the few bright spots out of today’s reports. The economy added 210,000 jobs in July from a month earlier, the most since January, the government said. The job- to-applicant ratio rose to 0.53 in July, meaning there are 53 job openings for every 100 candidates, the most since March 2009, according to a separate report released today.

To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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