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

smaller.

     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.

     --GRADUAL CPI RISE

     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.

     --FOOD INDUSTRY PRESSURE

     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: hiroshi.inoue@marketnews.com

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

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