Japan's consumption up, but deflation persists

ISTANBUL - Personal consumption in Japan is picking up but deflation remains a problem, Japanese Finance Minister Sadakazu Tanigaki told reporters on Tuesday after talks with his counterparts from China and South Korea.

"I have told them... personal consumption is improving but deflation is still a problem," Tanigaki said in Istanbul, where he will attend the annual meeting of the Asian Development Bank.

Tanigaki said economic cooperation between the three Asian nations would continue despite political tensions that have strained relations in recent weeks.

"Japan-China, Japan-Korea have various issues... but in terms of the economy we have been achieving fairly close ties. Whatever happens, we need to promote financial cooperation even if there are issues," he said.

Relations between Japan and China recently plummeted to their lowest level in three decades over a series of disputes, including Tokyo's treatment of wartime history, which is also a bone of contention in ties with Seoul.

Tanigaki said Asia's huge foreign exchange reserves, accounting for about two thirds of the world's total, required careful management.

"Combined, there are enormous forex reserves in Japan, China and Korea. The way they are and the way they are managed varies in Japan, China and Korea. But since the amount is this huge we have to manage them in a responsible manner," he said.

Last month, Tanigaki said Japan would move cautiously in managing its foreign exchange reserves -- the world's largest at over $800 billion.

Japan has repeatedly said it has no intention to change the composition of its foreign reserves, which are mostly denominated in US dollars.

The currency market has been sensitive to any signs of a reserve policy change by Japan, China, Taiwan or South Korea -- now the world's top holders of reserves with some US$2 trillion ($2.77 trillion) resulting from dollar-buying intervention to stem rises in their own currencies.

- REUTERS