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Remains on the front foot


‌‌(Z1)‌‌ Fails To Hold Onto Recent Gains

By Hiroshi Inoue
     TOKYO (MNI) - Friday's data will do little to shake the Bank of Japan's
belief that consumer prices will continue to edge higher, although modestly and
at a slower pace than previously expected, MNI understands.
     Stronger capex spending in the fourth quarter will likely see GDP growth
for the corresponding period revised higher, helping underpin the central bank's
view that the economy is recovering at a moderate pace.
     However, there is still unease at the bank that inflation has not yet taken
a firm hold and the BOJ will maintain its cautious outlook on prices,
particularly as the effect of higher energy prices will likely drop out of the
CPI at some point.
     February Tokyo core consumer prices excluding fresh foods and energy, a
leading indicator of the national inflation rate, rose 1.1% on year in February
for the 20th straight rise. It was unchanged from January, but higher than the
MNI median forecast looking for a 1.0% gain.
     February's gain was driven largely by the higher crude prices; +0.44
percentage points against +0.40 percentage points last month and that impact is
expected to diminish around April, pushing core CPI lower unless goods and
service prices accelerate.
     BOJ economists will wait on the annual corporate price revisions expected
in April to assess the impact on goods and service prices and how they feed
through into consumer inflation expectations.
     Inflation expectation will continue to play a key role in the BOJ outlook
and officials will have taken some heart in the modest uptick in the latest
Consumer Sentiment survey, also published Friday.
     Services prices rose 0.8% on year in February, slowing from +0.9% in
January, while prices for eating out rose 1.0% in February, slowing from +1.1%,
indicating firms remain cautious over passing on higher costs. However, some
food and drink firms plan to raise their prices in April.
     The BOJ see higher services prices, including eating out, are necessary for
Japan's inflation rate to accelerate as Japan's services prices are lower than
those of overseas, which are sensitive to labor and material costs.
     There were a couple of bright spots for BOJ economists to focus on; prices
for household durable goods rose 5.0% on year in February, accelerating from
0.5% in January, while goods prices excluding perishables rose 1.7% on year in
February, accelerating from 1.5% in January
     Tokyo CPI is a leading indicator of the national CPI for February, due out
on March 22. It indicates that the core CPI in February will rise 0.8% or higher
on year from +0.8% in January.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI London Bureau; tel: +44 203-586-2225; email: