Japan now faces a critical stage in its battle to defeat deflation, and is being helped by falling oil prices boosting Japan's terms of trade and getting the economy nearer its full potential, the Cabinet Office said in its annual economic report on Friday.
The report said Japan was making steady progress towards ending deflation, noting that the Bank of Japan's massive asset purchases had lifted inflation expectations, an important step to creating price stability.
Core consumer inflation has ground to a halt and may fall slightly until around end-September due largely to last year's oil price collapse, keeping the Bank of Japan under pressure to ease again to achieve its ambitious 2 percent price growth goal.
The Cabinet Office echoed the BOJ's view that cheaper oil prices were positive for the economy, stimulating economic activity.