Japan to end some crisis steps despite deflation risk

Japan's economy showed fresh signs of a recovery with the jobless rate falling to a four-month low in September and household spending rising.

But the improvement was overshadowed by fears of another long bout of deflation as seen after Japan's economic bubble burst in the 1990s.

The Bank of Japan warned that consumer prices would fall for three straight years — by 1.5 percent this year, 0.8 percent next year and 0.4 percent the following year. Japan could even face a decade of deflation, said Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong.

Japan was stuck in a deflationary spiral for years after its asset price bubble burst in the early 1990s, hitting corporate earnings and prompting consumers to put off purchases in the hope of further price drops.

The BoJ's decision to end in December purchases of corporate debt that were part of a fight against the credit crunch sets the stage for possible tensions with the government.

A batch of reports released Friday reinforced the picture of an economy that is slowly getting back on its feet.

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