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MNI INSIGHT: BOJ Sees Slow CPI Pickup, No Policy Change Now

By Hiroshi Inoue
     TOKYO (MNI) - The year-on-year rise in Japan's core consumer price index
accelerated slightly in June but Bank of Japan officials still think the pickup
in inflation is too weak to prompt any change to their cautiously stimulative
monetary easing stance, MNI understands.
     Friday's data confirms what MNI has already reported: The BOJ board, at its
July 30-31 policy meeting, is likely to lower its median inflation forecast for
the current fiscal year to 1% or slightly below from 1.3% made in April but an
expected downward revision to its 1.8% inflation outlook for fiscal 2019 will be
     The national average core CPI (excluding fresh food) rose 0.8% on year in
June for the 18th straight year-on-year rise. The pace picked up from +0.7% in
May but it was mainly due to higher prices for volatile items, such as hotels
and overseas holiday tours, and the downward pressure from lower mobile data
communications fees continues.
     While the prices for accommodations rebounded 2.1% on year in June after
falling 1.8% in May and those for overseas holiday tours gained 11.7% in June,
up from +5.6% in May, the costs for mobile communications slumped 6.7% after
-3.5% in the previous month as a leading carrier began offering further
discounts last month.
     BOJ officials share the view that inflation is expected to rise gradually
as more companies are forced to raise retail prices amid rising energy and labor
costs and the impact of the recent yen depreciation, which pushes up import
costs for durable goods.
     But they also maintain the view that the improvement of consumer prices
remains slow and that the pace of CPI gains will not accelerate sharply anytime
soon as firms have been absorbing higher costs through various measures, such as
labor-saving capital investment, to cope with labor shortages.
     BOJ economists are analyzing why prices are slow to respond to the widening
positive output gap and the tightening labor supply. The results of their
analysis will be released after the July policy meeting.
     They are also examining whether the factors that are restricting price
rises are temporary or structural, and how long they are likely to continue.
     On the upside, BOJ officials expect a continued rise in the prices for
eating out (+1.0% in June vs. +1.0% in May, +0.9% in April and +0.7% in March)
as the food service industry is under pressure from rising raw material and
labor costs.
     Goods prices excluding volatile fresh food prices rose 1.4% on year in
June, with the pace of increase faster than +1.2% in May. The pace of increase
in overall goods prices stayed high at +1.1% in June vs. +1.1% in May.
     The prices for processed food (canned food, bread, snacks, beverages,
etc.), which accounts for 15% of the total CPI, rose 1.1% on year in June after
+1.0% in May.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email:

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