Japan got word Friday that prices fell again in October, just as a surging yen threatens to worsen the deflation that is undermining the country's fragile economy.
The core consumer price index, which excludes volatile fresh food, retreated at a near-record pace of 2.2 percent from a year earlier, the government said. Prices have now fallen for eight straight months _ a trend that the government highlighted last week for the first time in three years.
The news came amid heightened concern over the Japanese currency, which hit a new 14-year high against the dollar in early Asian trading. The greenback touched 84.41 yen before recovering to low-86 yen levels.
A strong yen and deflation represent a perilous combination for the world's second-biggest economy.
Falling prices, which plagued Japan during its "Lost Decade" in the 1990s, may sound like a good thing. But deflation can hamper economic growth by depressing company profits, sparking wage cuts and causing consumers to postpone purchases. It also can increase debt burdens.
Meanwhile, a strong yen erodes the overseas profits of Japan's big exporters like Sony Corp. and Toyota Motor Corp. It can also aggravate deflation. Prices of imports and raw materials decline, which then pushes domestic consumer prices lower.
"In the midst of deflation, such a sharp rise in the yen is a very serious problem and could drag down the economy," said Fujio Mitarai, head of the Nippon Keidanren, the country's biggest business group. "I certainly hope the government responds with emergency steps."
Concerns overnight about debt problems afflicting Dubai have driven investors to the yen as a safe haven. Dubai World, a government investment fund with debts totaling around $60 billion, has asked creditors if it can postpone payments until May.
The yen also strengthened because of the disappointing comments Thursday by Japanese Finance Minister Hirohisa Fujii, analysts said. He sharpened his tone Friday, calling the yen's recent rise "one-sided" and saying the government would take appropriate measures if needed.
"What the market wants is for him to go a step further and say he is actually going to do something," said Akane Vallery Uchida, foreign exchange strategist at The Royal Bank of Scotland in Tokyo. "Unless he becomes more specific about taking action, it's not convincing enough."
Japan hasn't intervened in the currency market since March 2004. But it looks to be edging closer to some sort of action with prices expected to continue falling. The core consumer price index for Tokyo, seen as a barometer for prices nationwide, declined 1.9 percent.
On the labor front, the government released slightly better news.
Japan's unemployment rate improved to 5.1 percent in October, better than 5.3 percent the previous month and July's record high of 5.7 percent.
The number of jobless, however, rose almost 35 percent from a year earlier to 3.44 million, while the number of employed people fell 1.8 percent to 62.71 million, according to the Ministry of Internal Affairs and Communications.
The ratio of job offers to job seekers stood at 0.44, up for the second month, the labor ministry said. The figure means there were 44 jobs available for every 100 job seekers.
Analysts said the figures confirm that the labor market probably bottomed this summer, but they warn that the future is far from bright. Companies continue to cut costs and wages, and they may be pressured to pare even more as the strong yen and deflation squeeze profits.
Friday's figures also show that many workers have simply given up looking for work and thus are not counted in the official jobless rate.
"Today's unemployment rate should be seen as indicating stagnation rather than improvement in labor conditions," said Chiwoong Lee, economist at Goldman Sachs in Tokyo. "At the same time, the number of involuntary unemployed remains high, suggesting sustain improvement is not about to begin."
Monthly household spending rose 1.6 percent in October from a year earlier, the government said. The figure was lifted by consumer incentives that drove sales of energy efficient appliances and vehicles, analysts said.
The spending outlook appears mixed, with the uptick in labor market conditions, exports and production serving as positive drivers, said Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo.
"But a stall of improvement in business sentiment, particularly with the recent sharp appreciation of yen, and an expected record plunge in winter bonus are discouraging," he said in a note to clients.
Household spending is a key indicator of private consumption, which accounts for about 60 percent of Japan's economy.