MNI DATA IMPAT: BOJ May Consumption Index Drops; Seen Solid

     TOKYO (MNI) - The Bank of Japan's supply-side Consumption Activity Index

posted the first drop in two months, down a real 0.4% on a seasonally adjusted

basis, following +1.7% (revised from +1.4%) in April, data released Friday

showed.

     The BOJ's Consumption Activity Index is designed to forecast revised

private consumption, not a preliminary estimate.

     The index for the April-May period rose 0.8% on quarter, accelerating from

0% in the first quarter.

     BOJ officials think the developments in the index are consistent with the

latest  assessment that "private consumption has been increasing moderately,

albeit with fluctuations, against the background of steady improvement in the

employment and income situation."

     However, they also judge that private consumption, which accounts for about

60% of the total domestic output, is still lacking momentum as income is only

rising slowly. 

     Many eating/drinking firms are gradually raising their retail prices on the

back of the high labor and input costs on the assumption that price hikes will

be accepted by consumers.

     Private consumption isn't weak, but neither has it gained momentum. Higher

income will have a positive impact on household spending but it remains

uncertain how higher income will actually increase consumer spending, the BOJ

views.

     BOJ economists are focused on how private consumption accelerates in the

coming months due to the last minute surge in demand ahead of the sales tax hike

planned in October and how the underlying trending of consumption evolves after

the tax hike. 

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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