MNI INSIGHT: BOJ Sees Slower Spending Pressuring Inflation

By Hiroshi Inoue

     TOKYO (MNI) - The recent tax hike could impact corporate pricing abilities

and flow through to a further deceleration in prices if consumer demand drops

markedly, concerning officials at the Bank of Japan, MNI understands.

     Recent data has shown inflation continues to underperform BOJ expectations

and it is worried that will eventually impact inflation expectations.

     Data released Friday showed core inflation rose 0.3% y/y in September, a

33rd straight gain, but slowing from 0.5% in August and the slowest since April

2017..

     BOJ economists feel the impact of the post-tax hike dip in consumer

spending will be less in 2019 than that seen in 2014 as front-loading was also

less, but they are still aware there could be a noticeable slowdown.

     The Bank is currently taking sounding from retail industry sources but

acknowledges it could take a few months for the real trends to emerge.

     --CONFIDENCE

     The BOJ quarterly consumer survey offered little in the way of firm data,

with comparable pre-tax hike spending trends mixed when compared to 2014.

     There is also a lingering concern that the drop in real income following

consumption tax hike will dampen consumer sentiment from current levels, further

denting spending. Japan's consumer spending fell 1.5 points in September to 35.6

-- a 12th straight monthly fall to a series low.

     Although the hit on retail spending is a big enough concern for the BOJ,

perhaps the main worry is that falling sales in the shops will quickly hit

investment spending at many non-manufacturing firms, leading to a sharp downward

reduction in their capex plans.

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

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