Bank of Japan officials still expect slow.....>

JAPAN: Bank of Japan officials still expect slow inflation to pick up in the

second half of the year, led by upward pressure from higher materials and labor

costs, despite soft CPI data released Friday, MNI understands. The 12th straight

year-on-year rise was led by gradual gains in goods prices while service prices

remained depressed, largely due to slow wage hikes and partly due to the

government drive to lower mobile communications costs. But on the upside, BOJ

officials note, the prices for processed food (canned food, bread, snacks,

beverages, etc.), which account for 22% of the total CPI, have been rising

steadily, up 1.0% on year in December after rising at the same pace. By

contrast, the weakness remains in service prices, which account for just over a

half of the total CPI basket. In the longer term, BOJ officials also expect

sustained economic recovery to help push up consumer prices. The output gap of

the economy, which is a factor of determining inflation rates, has been

improving steadily. The positive output gap resulting from tighter supply and

firmer demand widened to 1.35 percentage points in the July-September quarter of

2017