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MNI (London)
--Japan Core CPI Up 0.8% Y/Y in Jan Vs. +0.7% in Dec
By Hiroshi Inoue
     TOKYO (MNI) - January's modest uptick in core nationwide inflation will be
a welcome sight for the Bank of Japan, but falling crude oil prices will
continue to weigh in coming months and officials are still eyeing expectation
levels with concern, MNI understands. 
     Consumer inflation expectation levels have been more or less unchanged in
recent months, but there is a worry that they will decline as fuel prices fall
at the pumps, which will help weaken momentum toward achieving the 2% price
target.
     January's positive contribution from energy prices was 0.37 percentage
point, slowing from 0.45 percentage point in December and 0.61 percentage point
in November, with BOJ officials seeing it slow further in the months ahead.
     Despite the continuing tight labour market and the output gap remaining in
positive territory, inflation hasn't picked up to levels BOJ officials expected,
as firms remain cautious about raising retail price.
     The BOJ still see the mechanisms from higher personnel costs increasing
pressure on firms to raise their retail prices as still working, although they
accept that deeply entrenched views means neither wages or prices will rise
easily or quickly.
     The ongoing caution seen in wage- and price-setting by companies, along
with continuing household concern over higher prices, has clearly not yet
changed, making it difficult for firms to raise retail prices.
     The real wage gap, which is defined as the deviation of real wages from
labor productivity, has remained at a low level, and this is contributing to
pushing down price rises, the BOJ analyzes.
     --CORE CPI ACCELERATES
     Japan average core CPI excluding fresh food and energy item rose 0.8% on
year in January, the 25th straight year-on-year rise, and the pace accelerated
from +0.7% in December and was in line with the MNI median forecast of +0.8%.
     The Tokyo core CPI, a leading indicator of nationwide CPI, rose 1.1% on
year in January, accelerating from +0.9% in December and indicating the rise in
the nationwide core CPI in January from December's +0.7%.
     Goods prices excluding volatile fresh food prices rose 1.1% on year in
January, with the pace of increase slowing from December's 1.2% gain. The pace
of increase in overall goods prices was -0.1% in January, slowing from +0.2% in
December.
     --SLUGGISH KEY PRICES
     Prices for processed food (canned food, bread, snacks, beverages, etc.),
which accounts for 15% of the total CPI that BOJ officials are focused, rose
0.5% on year in January, unchanged from a 0.5% gain in December. The index
indicated that firms remained cautious about raising their retail prices despite
higher energy and labor costs.
     Prices for eating out rose 1.1% on year in January, after rising 1.1% in
December, indicating that upward pressure on the service prices from higher
labor and material costs continues, but hasn't increased.
     The next key data is the Tokyo CPI for February, due out on March 1.
--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
[TOPICS: MMJBJI,MAJDS$,MMJBJ$,M$A$$$,M$J$$$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com