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MNI INSIGHT: Tankan Confirms BOJ's Cautious Price Outlook

By Hiroshi Inoue
     TOKYO (MNI) - The Bank of Japan board is likely to maintain its cautious
outlook for inflation expectations at its policy meeting at the end of the month
after the bank's latest Tankan business survey showed that the gradual
improvement in the corporate price outlook had stalled.
     The slip in the near-term inflation outlook found in Tuesday's data alone
would not prompt the BOJ board to lower its median forecast for the core CPI in
fiscal 2017 from the +1.1% it predicted three months ago because inflation
expectations in Japan have been reactive to previous inflation data, rather than
     At the Oct. 30-31 meeting, the board will also digest more indicators,
including September CPI due Oct. 29, to judge whether the 1.1% projection would
be slightly too high to achieve this fiscal year, given the slow start in the
April-June quarter.
     BOJ officials still believe that the gradual pickup in consumer prices
should help eventually turn around the stubborn deflationary mindset that
continues to plague households and businesses but the survey confirmed their
view that it would still take some time for inflation expectations to rise.
     They will further analyze the situation by looking at household inflation
expectations included in the bank's quarterly consumer sentiment survey due
     The BOJ released data Tuesday on the CPI outlook among companies polled in
its quarterly Tankan survey for September conducted from August. 29 to September
29. The main parts of the survey on business sentiment, investment plans, labor
and product supply and demand conditions were released Monday.
     In the September Tankan survey, companies on average revised down their
expectations for the consumer price index one year ahead from the previous
Tankan survey, but left their inflation outlook for three and five years ahead
unchanged from June.
     Firms on average expect the annual consumer inflation rate to stand at 0.7%
a year from now, down from 0.8% projected in June. In June, they made the first
upward revision in two quarters after forecasting +0.7% in March.
     Firm's inflation forecasts for three and five years ahead were unchanged at
1.1% each.
     BOJ officials are patiently monitoring the impact of the improving output
gap and labor shortages on consumer prices.
     At its July policy meeting, the BOJ board thought inflation expectations
were bottoming out.
     "Some indicators show a rise in such expectations recently," it said in its
Quarterly Report.
     But the board didn't change the overall assessment at the time, saying
inflation expectations "have remained in a weakening phase."
     Government data released Friday showed the total national consumer price
index rose 0.7% on year in August, accelerating from +0.4% in July.
     BOJ officials have said that when the total CPI rises, it will push up
inflation expectations. But expectations haven't risen as much as BOJ officials
     The August CPI data seem to have come too late to have any uplifting effect
on the price outlook. About 70% of the surveyed firms had replied by Sept. 12,
which means virtually all of the responses had already come before the CPI data
were released on Sept. 29, the last day of the survey.
     Government data released Friday also showed the national average core CPI
(excluding fresh food but including energy prices) rose 0.7% on year in August,
the eighth straight year-on-year rise, accelerating from 0.5% in July.
     Excluding the upward pressure from energy prices, the underlying price
trend has shown only slow improvement. The CPI excluding fresh food and energy
(the core-core CPI) rose 0.2% on year in August, after rising 0.1% in July.
     The recent price data show momentum is still weak and prices have to rise
at a much steeper pace in order to average 1.1% in the current fiscal year, as
predicted by the BOJ board in its quarterly report in July.
     In the April-June quarter, the year-on-year rise in the core CPI averaged
just 0.4%. In the July-September quarter, the pace has picked up slightly but if
it is about 0.6% or 0.7%, the average for the first six months of fiscal 2017
would be low, around 0.5% or 0.6%.
     In its quarterly Outlook Report released after the July meeting, the BOJ
board continued to revise up slightly its economic growth forecast for the next
two years on firmer global demand but revised down its projection for inflation
through fiscal 2019 as the pace of increases in wages and retail prices remains
     The board's median forecast for core CPI for the current fiscal year was
revised down to 1.1% from the 1.4% it predicted in April.
--MNI BEIJING Bureau; +1 202-371-2121; email:

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