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MNI (London)
--BOJ Officials Vigilant To Strengthening Yen Impact
By Hiroshi Inoue
     TOKYO (MNI) - The current pick-up in Japan's inflation rate is slower than
Bank of Japan officials were expecting earlier this year, but the BOJ board will
keep the estimated timing of hitting its 2% price target at "around fiscal 2019"
when its two-day meeting ends on April 27, MNI understands.
     The momentum toward hitting the 2% price target hasn't gained impetus but
remains on track, the BOJ views.
     The BOJ board under the new executives, the reappointed Haruhiko Kuroda as
governor and the new deputy governors Masayoshi Amamiya and Masazumi Wakatabe,
will likely stand pat on monetary policy at the meeting.
     Following the meeting, the BOJ board will release its medium-term economic
growth and inflation rates until fiscal 2020 to March 31, 2021. The board's
median forecast for inflation rate, measured by core consumer price index
excluding fresh food, in fiscal 2020 -- the first forecast -- will be around
     The board's median forecasts for core CPI this fiscal year and in fiscal
2019 will not be revised much from the +1.4% and +1.8% presented in January.
     "The picture is unchanged that the economy is recovering as (officials)
expected but inflation rates are slow to respond to an economic recovery. But
the momentum toward achieving the 2% price target is maintained," a person
familiar with BOJ thinking said.
     The source added that BOJ officials are focused on how inflation rates will
accelerate in the coming months following corporate annual price revisions and
wage hikes.
     The latest government data showed that the national average core consumer
price index (excluding fresh food) rose 1.0% on year in February, up from +0.9%
in January, December and November, but is still below the BOJ's 2% target.
     The core-core CPI (excluding fresh food and energy) rose just 0.5% on year
in February, after rising 0.4% in January.
     The BOJ board has been expecting that firms' gradually shift their stances
toward raising both wages and prices with the improvement in the output gap.
     Transportation and dining-out industries, both facing severely higher
costs, are raising their retail prices and the output gap continues improving.
However, corporate price hikes haven't fully filtered through to government
     BOJ officials noted that it takes time to see the rise in inflation rates
caused by corporate price-hikes and the improving output gap filter through to
     Volatility in global financial markets has been increasing since February
and it is increasing uncertainty over future economic activity. However, BOJ
officials maintain the view that Japan's economy is likely to continue expanding
moderately based on solid global and domestic demand.
     Meanwhile, BOJ officials are vigilant against a stronger yen, which could
quickly dampen stock prices and sentiment, undermining the virtuous cycle from
income to spending.
     According to another person also familiar with BOJ thinking, "Compared with
the previous Outlook Report in January, a prominent change (to the situation) is
the level of the dollar/yen."
     He added that a stronger yen is the most troublesome factor for Japan's
economy and inflation rates.
     The dollar traded around Y107.10 in Tokyo Wednesday, compared with around
Y110 in January, and above the average predicted exchange rate expected by major
manufacturers of Y109.66 seen in the BOJ March Tankan survey.
     BOJ officials don't expect the current dollar/yen level to immediately
worsen the virtuous cycle from income to spending in both corporate and
household sectors, but they remain watchful.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
MNI London Bureau | +44 203-865-3812 |
MNI London Bureau | +44 203-865-3812 |

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