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MNI ANALYSIS: BOJ Sees FY18 Markups Despite Soft Mar Tokyo CPI

By Hiroshi Inoue
     TOKYO (MNI) - The slower inflation in Tokyo in Friday's data indicates the
national average CPI may also show a softer tone in March but Bank of Japan
officials still expect more firms to raise prices in fiscal 2018 starting in
April, MNI understands.
     The officials believe the momentum toward achieving the bank's 2% inflation
target is maintained.
     In central Tokyo, the core consumer price index excluding fresh food rose
0.8% on year in March for the ninth straight year-on-year rise, but the pace of
increase decelerated from +0.9% in February.
     It was mainly in payback for temporary price-boosting factors in February,
when Chinese tourists rushed to Japan during the Lunar New Year holidays,
pushing up the prices for accommodations here. Strong Japanese demand for
traveling to South Korea for the PyeongChang Winter Olympics also led to higher
prices for overseas tours in February.
     But at the same time, energy prices also showed a slower 5.8% rise in March
after +6.8% in February, meaning the upward pressure on the core CPI will wane
in the coming months. The March national average CPI, due on April 20, may show
a slowdown from February's 1.0% rise in the core reading.
     Government data released Wednesday showed a sixth consecutive weekly drop
in the national average regular gasoline price in Japan this week.
     The prices of goods excluding volatile fresh food rose 1.5% on year in
March, with the pace of increase decelerating from +1.6% in February. The
service prices, which account for just over a half of the CPI basket, remained
depressed, rising 0.3% on year in March, slowing from +0.4% in February.
     The prices for household durable goods rose 0.7% on year in March, slower
than +2.6% in February, indicating that companies are generally cautious about
passing higher costs onto consumers amid sluggish private consumption.
     On the upside, however, the March Tokyo CPI showed transportation costs
rose 12.1% on year, up from +10.3% in February, and that restaurant bills gained
0.6%, also up from +0.4% in the previous month.
     This confirms some companies are already passing higher labor and raw
material costs onto consumers and that other firms may follow suit.
     In fiscal 2017 ending in March, the Tokyo core CPI rose 0.4% from the
previous year, the first rise in three years after falling 0.4% in fiscal 2016
and being unchanged in fiscal 2015.
     But the narrower price indicator showed Japan needs some more time before
inflation is well anchored around 2%.
     The core-core CPI (excluding fresh food and energy) -- a key indicator of
the underlying trend of inflation -- rose just 0.1% in fiscal 2017, slowing from
+0.2% in fiscal 2016 and +0.7% in fiscal 2015.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email:
[TOPICS: MAJDS$,MMJBJ$,M$A$$$,M$J$$$,MT$$$$]

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