Domestic Demand...

...is Asia's problem. In light of the recent post on Mr. Bernanke and the limit of zero-bound nominal interest rates, raise your hand here if you think "accomadative monetary policy" alone can wrest an economy out from recession.

I will post a rant about "nominal vs. real" rates soon as well.

TOKYO, June 26 - Japanese consumer prices fell a record 1.1 per cent in the year to May, with falling demand increasingly blamed as the country’s second bout of deflation in less than two years deepens.

The slide may make the Bank of Japan less willing to end unconventional policies due to expire in September. But the central bank will likely stop short of a return to full-blown quantitative easing as the world’s second largest economy is expected to resume growing after contracting for a full year, analysts say.

“Deflation is getting worse and underscores that the BOJ cannot move for a considerable time,” said Masamichi Adachi, senior economist at JP Morgan.

“Even with deflation going further, as long as the real economy is on an uptrend, I think the BOJ will not activate quantitative easing.”

Kaoru Yosano, finance minister, also expressed concern about the impact of weak output and demand as the nationwide core consumer price index fell 1.1 per cent in May from a year earlier.

It was the largest fall in records dating back to 1970, but slightly less than a consensus forecast for a 1.2 per cent drop.