MNI INSIGHT: BOJ Watchful As Mixed Data Offers No Clues

By Hiroshi Inoue

     TOKYO (MNI) - The latest inflation data was disappointing for the Bank of

Japan, with no noticeable flow through from the recent corporate price hikes

into the official numbers, although the pick-up in industrial output in April

offered policymakers some cause for optimism, MNI understands. 

     Central Tokyo core inflation, a leading indicator for the nationwide data,

rose 1.1% on year in May, a 23rd straight rise but slowing from April's +1.3%,

suggesting there had yet to be any noticeable impact from corporate retail price

hikes on government data.

     The nationwide data for May is due out on June 21, with the Tokyo data

suggesting a slowdown from the 0.9% seen in April.

     --SOME ENCOURAGEMENT

     Higher processed food prices, which accounts for 15% of the total CPI the

BOJ focus on, offered some encouraging signs, rising 1.2% on year in May,

accelerating from 0.9% in April. Prices for eating out also rose, up 1.3%,

accelerating from +1.1% last month, as higher costs were passed on in the

sector.

     Services prices overall, however, which account for just over half of the

CPI basket and are therefore closely watched by the BOJ, slowed to +0.6% in May

from +0.9% in April. Goods prices excluding perishable foods rose 1.7% on year

in April, slowing from +2.0% in April.

     --OUTPUT HIGHER

     Industrial production, a closely watch guide for overall demand in the

economy, rose 0.6% on month in April after falling 0.6% in March, preliminary

data released Friday by the Ministry of Economy, Trade and Industry showed.

     Although upbeat overall, there were mixed messages in the output data.

Electronic parts and devices, a key sector of Japan's economy, saw output fall

7.7% in April after rising 5.8% in March. Against that, shipments of capital

goods excluding transport equipment rose 0.6% on month in April, reversing a

1.5% fall in March.

     METI upgraded its assessment, saying that "production is marking time"

after saying "production is weakening" last month and they see production rising

5.6% in March before falling 4.2% in June.

     That would see output rise 0.1% q/q in Q2, bouncing back somewhat from the

2.5% fall in Q1. BOJ economists remain downbeat over the outlook as the

realization ratio, showing how actual production deviated from that initially

planned, remained weak; -1.9% in April and -1.2% in March.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

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

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