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Govt. says Japan in deflation

TOKYO, Nov. 20 (UPI) -- Japan, hit by falling prices, is faced with a deflationary situation despite recent signs of recovery, the government said Friday.

The announcement, the first such in three years, comes in the wake of recent expectations of continuing recovery from the country's worst post-war recession.

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The government believes Japan is in ''a deflationary situation'' and the role to be played by monetary policies is very important, said Deputy Prime Minister Naoto Kan, who is also the state minister for economic and fiscal policy, the Kyodo news agency reported.

That would mean the government would want to work closely with the Bank of Japan, the country's central bank, to avoid jeopardizing some of the recent tentative improvements in economic activity, Kan said.

Separately Friday, the central bank left its key short-term interest rate unchanged at 0.1 percent.

Expressing concern, Finance Minister Hirohisa Fujii said fiscally nothing much can be done as public spending cannot help boost prices.

''We are aware of the serious risk,'' Fujii said. "The current situation is not what it should be.''

''Public (spending) has propping-up effects,'' he said. ''But when it comes to improving the economy, in the words of (economist John Maynard) Keynes, it has to come from the private sector.''

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The core consumer price index, excluding fresh food prices, fell for seven months through September, Kyodo said. Japan's wholesale prices also dropped for the third straight month.

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