TOKYO, Jan 4: Top financial leaders of the Group of Seven industrial nations are likely to discuss deflation at a meeting to be held next month in Paris, Kyodo news agency quoted a Japanese government source as saying on Saturday.

Although Japan is the only country among the industrialised nations actually suffering from deflation, the United States and European countries also face the risk of falling into deflation, Kyodo quoted the source as saying.

Deflation is not something that was brought about by reasons attributed only to Japan, the source was quoted as saying.

Of course there were some special reasons for Japan, such as the burst of the (asset-inflated) bubble and the large amount of non-performing loans (at the nation’s banks.) But there are risks for deflation in Europe and the US as well, the source said.

Tackling the deflation that has plagued the Japanese economy has been a key issue for the country’s policymakers, and Economics Minister Heizo Takenaka said last month that ending deflation was a top priority for Japan.

The government said last month that Japan’s nationwide consumer prices fell by 0.8 per cent from a year earlier in November, the 38th straight month of decline.

The source said Japan’s example showed the importance of preventing economies from falling into deflation.

Once deflation is brought about, it is difficult to rid oneself of it, he said. Traditional monetary policies become ineffective. When you look at how many unconventional steps there are to fight it, and how effective they are, they are unknown, Kyodo quoted the source as saying.

The government source added that Japan’s monetary policy has been insufficient to fight deflation, but a decision on what to do about it was up to the Bank of Japan (BOJ).

At least, if you ask me if the current policies in place are enough, they are not. Saying they are sufficient means that prices are stable. But prices are not stable, the source said.

The source also said that monetary policy and not fiscal policy was the key to fighting deflation, Kyodo said.

The G7 is made up of France, Germany, the United States, the United Kingdom, Italy, Japan and Canada.—Reuters