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Extends Lower With Bears In Charge

MNI (London)
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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MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com