S&P : Japan reflation facing many hurdles

The Japanese economy is facing many hurdles as it struggles to reverse long-term deflation, according to a report from ratings agency Standard & Poor's on Friday. The Liberal Democratic Party took power this week on a campaign that pledged to inject new life into the limp economy, after it won a landslide election earlier this month. S&P said the election raised hopes the world's third-largest economy may be able to escape the deflation that has haunted it for years, and recommended that policy makers "aggressively implement" measures to do so. "It is positive that the Japan reflation issue is in play again and, with the change in government, Japan is likely entering a period of both policy and market action," said S&P's chief economist Paul Sheard. "However, the hurdles to a policy-induced reflation are many, and they are high." The report said past actions by the Bank of Japan were not enough and warned it was unlikely the bank would take the sweeping actions necessary to bring about reflation. The report comes as data released Friday showed consumer prices in Japan slipped 0.1 percent on an annualised basis. The nation's new leader, Shinzo Abe, has threatened to revise a law guaranteeing the BoJ's independence if it refuses to adopt a two percent inflation target -- part of his get-tough fix for the economy. There has been tension between Abe and BoJ governor Masaaki Shirakawa on policy issues, with the new premier earlier saying he wants to replace the bank chief when his term ends in April. Separate data released on Friday showed that Japanese factory output slowed 1.7 percent in November, with firms hurt by a strong yen, turmoil in the key European market and the global economic slowdown.