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MNI (London)
By Hiroshi Inoue
     TOKYO (MNI) - A mixed bag of data Friday offered no clarity to the economic
outlook for the Bank of Japan as it heads into an extended holiday period, with
inflation in Tokyo accelerating moderately as industrial output slowed more than
expected, leaving the central bank unchanged in its assessment of the economy,
MNI understands.
     Central Tokyo inflation accelerated to 1.3% in April, but BOJ officials
remain cautious as doubts persist over the sustainability of corporate price
hikes in coming months, a driver of April price hikes. Tokyo's Core CPI, which
excludes fresh foods, is a leading indicator of the national inflation rate. It
rose for a 22nd straight month and outpaced the MNI survey median, which
forecast a gain of 1.1%.
     Industrial output, a key piece of data for BOJ officials in assessing the
overall outlook as it reflects both external and domestic demand, fell in March,
unable to build on the February bounce back. That left the central bank still
eyeing the outlook, unsure as to how long it will be before output recovers amid
weak global demand and domestic corporate caution on capital investment.
     March saw industrial production fall 0.9% after a 0.7% gain in February,
according to preliminary data released Friday by the Ministry of Economy, Trade
and Industry, with lower output of motor vehicles, production machinery and
fabricated metals the main downside driver, while the output of electronic parts
and devices rose. It wasn't unexpected by BOJ officials, who had expected weaker
global demand to weigh.
     Industrial production over Q1 fell 2.6% after a gain of 1.4% in Q4 2018.
     The BOJ was encouraged by the pick-up in Tokyo inflation, but remains
concerned over the sustainability of recent price hikes and corporate annual
price revisions. Overall goods prices were higher, but price rises for
perishable and processed foods were slower.
     Core-core CPI (excluding fresh food and energy) -- a key indicator of the
underlying trend of inflation -- rose 0.9% on year in April, accelerating from
+0.7% in March.
     A main concern for the BOJ looking for inflation 'stickiness' is that
recent price hikes pushed through by corporates experiencing higher labour and
material costs will be rebuffed by consumers, also experiencing higher gasoline
prices, which will further slow the recovery.
     The BOJ's unease over the outlook for industrial output is mirrored by
METI, who lowered its assessment from last month, now saying "production is
weakening", revised from its previous view that "production is marking time."
Despite the change in assessment, the ministry sees a rebound in April.
     Based on this assumption and if June output were flat, production would
rise 1.6% on quarter in April-June, the first rise in two quarters following
-2.6% but the expected rise isn't enough to offset a 2.6% drop for the first
     BOJ economists will look for a pick up in shipments of capital goods to
give a nod towards a revival in overseas capex, which will be a big boost to the
domestic economy. However, the Bank's Outlook Report, released Thursday, warned
over the outlook for IT-related goods, saying, "the progress in global
adjustments in IT-related goods may take longer than expected as there are high
uncertainties regarding developments in final demand."
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
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