Consumer prices excluding fresh food fell 0.6 percent from a year earlier after dropping 1.1 percent in September, the statistics bureau said in Tokyo. The government’s Oct. 1 tax increase, which boosted the cost of cigarettes by a third, added 0.28 percentage point to the figure, the bureau said.
Entrenched deflation is weighing on an economy at risk of contracting this quarter after a climb in the yen to a 15-year high undermined export growth. The currency’s 11 percent advance against the dollar this year has also exacerbated price declines by lowering import costs, adding to the case for the Bank of Japan to provide more monetary stimulus.
Falling prices undermine an economy by eroding corporate earnings, putting pressure on wages, and making debts harder to pay off. Deflation has afflicted Japan for more than a decade, contributing to its being surpassed by China in the second quarter as the world’s second-largest economy, after the U.S.