Japanese consumer prices fell at a record pace in the year to May, adding to other weak signals about the health of the global economy, but stock markets headed for a positive end to the week on hopes of an improvement down the track.
Governments and central banks around the world have embarked on unprecedented efforts to try and limit the fallout from the worst financial crisis in 80 years, but evidence of a recovery has remained elusive.
Analysts said the record deflation in Japan may encourage the central bank there to extend its unconventional policies aimed at providing additional funding support for companies, such as buying corporate bonds, beyond the scheduled September expiry.
"Deflation is getting worse and underscores that the BOJ cannot move for a considerable time," said JP Morgan senior economist Masamichi Adachi.
Finance Minister Kaoru Yosano also expressed concern about the impact of falling output and demand as the nationwide core consumer price index fell 1.1 percent in May from a year earlier, the largest fall in records dating back to 1970.
Economic readings from elsewhere in Asia were also weak, with New Zealand's economy shrinking for a fifth straight quarter in the first three months of the year and South Korea's seasonally adjusted current account surplus halving in May versus April.
Companies have been cutting jobs and spending in an effort to ride out the downturn, adding to the pressure.
Boeing Co, the world's No.2 plane-maker, suffered a heavy blow when Australia's Qantas Airways scrapped and deferred orders for 30 new planes, citing the tough operating environment.
STOCKS FIRM
But some less gloomy news came out of the United States.
Although jobless claims unexpectedly rose in the latest week, U.S. GDP dropped at a 5.5 percent annual rate in the first quarter, a bit less than first reported. Economists had expected worse but the data still showed widespread weakness.
Wall Street rallied on on the better-than-expected reading of the U.S. economy, and after Federal Reserve Chairman Ben Bernanke withstood a barrage of questions from Congress on his handling of the Bank of America-Merrill Lynch deal during the height of the crisis.
Major U.S. indexes rose about 2 percent, helping Asian stocks start positively on Friday.
Japan's Nikkei added 0.2 percent, while stocks elsewhere in the Asia-Pacific rose 1.5 percent, heading for a third straight session of gains.
"Everyone recognises that the market is heading for recovery, and this is likely to be verified when Japanese companies start reporting results next month. The mood is improving," said Hiroichi Nishi, general manager at the equity division of Nikko Cordial Securities in Japan.
Investors will get a more current reading on U.S. economic conditions with personal consumption data for May due later on Friday expected to show a rise in personal consumption and expenditure.
