Tokyo says deflation 'controlled'

The Japanese government has forecast that the country's economic growth will slow to 1.6% in the next fiscal year starting in April 2005.

While it predicts this fall from the current 2.1% level, it said it was making progress on ending deflation. The figures were given by economics minister Heizo Takenaka who said the economy would grow by 2% in 2006/07. He said the consumer price index (CPI) would rise 0.1% in the next fiscal year, the first gain since 2000/01. "We are attempting to make real economic conditions better and to overcome deflation. I think we are on track," said Mr Takenaka. Deflation - or falling consumer prices - has plagued Japan for more than five years. To ease the problem the Bank of Japan has regularly flooded the money market with excess cash to keep short term interest rates at 0% in an attempt to spur economic activity.