Japan\\\'s war on deflation faces its toughest battle

TOKYO, Nov 26 (AFP) : As Japanese Prime Minister Shinzo Abe heads to the polls next month, the success of his war on deflation hinges on convincing people like 24-year-old Ryo Tatemichi to shrug off fears about the future and start spending.
That's a tough sell when young workers like Tatemichi are struggling with insipid wage growth and declining job security, and as the economy slips into its fifth recession since 2000.
"If things keep going like they are, salaries could drop. That's why people need to save now," said Tatemichi, an information technology worker who puts aside as much as one-third of a 200,000 yen ($1,700) a month salary before overtime pay.
"It would be good if people who do have money spend it... But all we hear about is economic gloom. People are scared of spending their cash."
Japan's economy shrank between July and September, the second consecutive quarterly contraction, in the wake of an April sales tax rise that was designed to help pay down one of the world's largest public debt mountains.
The levy hike delivered a body blow to Abe's efforts to rev up growth, just as the world's number three economy appeared to be turning a corner.
The weaker-than-expected figures convinced Abe to put off another sales tax hike, due in 2015, and call a snap election that he described as a referendum on his policies, dubbed "Abenomics" -- although observers said it was a strategic move to fend off party rivals ahead of a leadership vote next year.
The move set off a flurry of speculation about whether Abe's grand economic experiment had died on the operating table, and sparked questions about what Japan's struggle with falling prices means for the eurozone as it teeters on the edge of deflation.
"The lesson for Europe is that what counts most is not to fall into deflation" in the first place, said Atsushi Nakajima, chairman of Japan's Research Institute of Economy, Trade and Industry.
While many economists say it is still too early to judge the success or failure of Abenomics, changing Japan's so-called "deflationary mindset" has proven to be a Herculean task for Abe and his hand-picked Bank of Japan chief Haruhiko Kuroda.