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MNI INSIGHT: BOJ Cautious Inflation View Intact Post-Tokyo CPI

MNI (London)
By Hiroshi Inoue
     TOKYO (MNI) - Bank of Japan officials remain vigilant over the outlook for
inflation, as sluggish Tokyo October consumer price inflation data, published
Friday, reconfirmed that the slow pace of improvement continues, MNI
understands.
     Those officials, however, maintain the view that the momentum toward
achieving the 2% price target remains and they still believe that upward
pressure on consumer prices will pick up, albeit slowly.
     They also think inflation will not accelerate sharply, as the structural
factors restricting price rises laid out in July will continue.
     --SLOW TOKYO CPI
     In central Tokyo, the core CPI excluding fresh food prices rose 1.0% on
year in October for the 16th straight year-on-year rise, unchanged from
September and coming in line with the MNI median economist forecast of +1.0%,
government data released Friday showed.
     Japan's inflation rate was again mainly boosted by energy costs (+7.4% on
year in October vs. +6.4% in September).
     Boosted by the higher crude oil price, the average price of regular
gasoline in Japan rose to Y160.00 per liter this week, the eighth straight
weekly rise, to the highest level since November 2014.
     The crude oil price has a quick impact on gasoline prices in Japan and it
will affect petroleum products, gas and electricity prices with about a six
months lag.
     Given the Tokyo data is a leading indicator of the national average, the
core national CPI for October (due on Nov. 22) is unlikely to accelerate from
the +1.0% seen in September.
     --NATIONWIDE OUTLOOK
     BOJ economists expect core national CPI to move around 1% or slightly
higher for the time being and they judged that the track record for the
April-September period was weaker than they had expected back in July.
     The core-core CPI (excluding fresh food and energy) -- a key indicator of
the underlying trend of inflation that BOJ economists are focused -- rose 0.6%
on year in October, slowing from +0.7% in September.
     On the bright side, the Tokyo CPI data showed that prices for goods have
been rising gradually, reflecting higher material and labor costs. The prices
for all goods rose 2.7% on year in October, with the pace of increase
accelerating from September's 2.1%, as fresh vegetable prices rose following
Japan's autumn natural disasters.
     The prices of goods excluding volatile fresh food rose 1.6% on year in
October, with the pace of increase also decelerating from 1.5% in September.
     On the down side, prices for household durable goods fell 3.0% on year in
October, although the pace of decline slowed from -3.1% in September, indicating
that companies are generally cautious about passing higher costs onto consumers
amid sluggish household consumption.
     --SLOW SERVICE PRICES
     Weakness remains in service prices, which account for just over a half of
the total CPI basket, perhaps surprising BOJ officials who expected service
prices to have picked up faster.
     Overall service prices rose 0.6% on year in October, accelerating from 0.5%
in September, weighed partly by the drop in accommodations (-0.3% on year in
October vs. +0.8% in September).
     The prices for eating out rose 0.9% on year in October, slowing from +1.0%
in September.
--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
[TOPICS: MMJBJI,MAJDS$,MMJBJ$,M$A$$$,M$J$$$,MT$$$$,MX$$$$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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