TOKYO: Japan yesterday offered its strongest indication yet it sees a way out of deflation next year, after being mired in a corrosive mix of falling prices and weak economic growth for much of the past two decades.

The assessment, part of the government's mid-year economic forecasts, could ease political pressure on the central bank for imminent policy easing to nudge prices higher.

The government expects real gross domestic product (GDP) to expand 1.7 per cent in the fiscal year beginning in April 2013, from an expected increase of 2.2pc in the current business year after no growth last year.

But economists still expect the world's third-largest economy to struggle in coming quarters if global demand continues to falter.