Source: Reuters

Japan is bracing for another spell of deflation next year, but chances are price declines will be less protracted and damaging than the last, decade-long run.

Falling prices may be good for consumers, but if the declines persist they discourage spending — why buy anything now if one can get it cheaper later? That cripples investment and triggers a vicious spiral of falling prices and economic stagnation.

For most nations deflation has been a bogey-man confined to economic textbooks, but in Japan declining consumer prices and weak growth have been a fact of life for much of the past decade.

Soaring oil and food costs helped push prices higher in the past year or so, but analysts say the retreat in commodities markets and a recession in Japan and much of the developed world mean consumer prices are set to start falling again next year.

“You can’t underestimate the chance of prices falling again in Japan,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

“It will likely happen next year, just when domestic demand will suffer more from the lagging effect of the global slowdown.”

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