MNI INSIGHT: BOJ Remain Cautious Despite Jan Tokyo CPI Rise

--Volatile Crude Prices Seen Lesser Impact In Coming Months

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan is still cautious in its inflation outlook,

as January's pickup-up in Tokyo core CPI prices is seen driven by higher crude

prices and that will likely dissipate in coming months, MNI understands.

     Officials remain vigilant over the inflation outlook, with firms still

cautious about raising retail prices amid lacklustre consumer demand. 

     Tokyo core consumer price index rose 1.1% on year in January, accelerating

from +0.9% in December, mainly on the back of a higher positive contribution

from  crude oil prices; +0.40 percentage points in January against +0.38

percentage points in December.

     The positive contribution from the crude oil prices is widely expected to

weaken over coming months, weighing on the inflation rate -- unless the goods

and service price inflation that BOJ officials focus on accelerates.

     --INFLATION EXPECTATIONS EYED

     BOJ officials are closely eyeing how weaker consumer prices will impact

medium- to long-term inflation expectations, particularly from the volatile oil

prices.

     The BOJ board Wednesday lowered their median inflation forecast in fiscal

2019 to +0.9% from +1.4% made in October, while FY2020 was also lowered to +1.4%

from +1.5%. But the board maintained the assessment that the momentum toward

achieving the 2% price stability target is maintained, although it's not yet

sufficiently firm.

     Upward pressure on prices from rising materials and labor costs has been

somehow offset by corporate efforts to raise labor productivity by investing in

automation and information technology.

     --SERVICES UP, GOODS SLOW

     A bright spot for BOJ were the higher services prices, a main focus for

officials, which account for just over a half of the CPI basket. Service prices

rose 0.9% on year in January, accelerating from 0.7% in December.

     In central Tokyo, a leading indicator of nationwide price data, core CPI

rose 0.9% on year in January for the 19th straight year-on-year rise.

     Tokyo CPI is a leading indicator of the national CPI, with the next

national data due out on Feb. 22. The latest Tokyo data suggests national core

CPI will rise 0.8% or higher on year in January from December's +0.7%.

     On the other side of the slate, Goods excluding volatile fresh food rose

0.9% on year in January, decelerating from 1.0% in December, indicating that

corporate price-hike activity remains subdued across some sectors. Prices for

eating out rose 1.1% on year in January, decelerating from 1.2% in December.

--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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