MNI INTERVIEW: Ex-BOJ Momma: 2% CPI Unlikely in Next 5 Years

--Ex-BOJ Momma: Higher Wages Unlikely To Accelerate Inflation

--EX-BOJ Momma: Momentum Toward 2% Price Target Won't Emerge

--Ex-BOJ Momma: BOJ To Keep 2% CPI in FY19 View at Apr Meeting

--Ex-BOJ Momma: BOJ Board FY20 CPI Forecast Seen 2.0% or 2.1%

By Hiroshi Inoue

     TOKYO (MNI) - Wage in Japan this year are expected to grow at the fastest

pace in at least three years but are unlikely to help lift core inflation to the

Bank of Japan's 2% target in the next five years, Kazuo Momma, a former BOJ

chief economist, told MNI.

     Average wage at major firms are likely to rise by around 2.5% in fiscal

2018, up from 2.11% seen the previous year and a recent high of 2.38% in fiscal

2015, thanks to sustained economic recovery and record highs corporate profits,

Momma, who left the central bank in 2016 at the end of his term as executive

director, said in an interview with MNI Thursday.

     --SLOW RESPONSE

     But Momma, who is executive economist at Mizuho Research Institute, warned

that consumer prices have been slow to respond to the modest economic recovery

and labor shortages.

     "Higher wages will not drastically boost the current pace of inflation," he

said.

     In annual wage negotiations with unions, major firms responded on Wednesday

with plans to raise average total wages including bonuses for the fifth straight

year but many of the offers fell short of meeting the 3% raise target called for

by Prime Minister Shinzo Abe.

     "An increase above 2.38% would be still lower than the above 5% pace seen

in 1989, 1990 and 1991," said Momma. The annual inflation rate for those

asset-bubble years measured by the core CPI (excluding fresh food) was 2.4%,

2.7% and 2.9%, respectively.

     Momma said that it is "very difficult" for the core CPI to rise to the

BOJ's 2% price target around fiscal 2019 and also the core-core CPI (excluding

fresh food and energy), a key indicator of the underlying price trend, to climb

to 1% during the period.

     The national average core CPI rose 0.9% on year in January, unchanged from

December, while the core-core CPI gained 0.4% on year in January after rising

0.3% in December.

     --NO UPWARD MOMENTUM

     "Upward pressure on consumer prices will rise in the coming months, judging

from the improving output gap and the sustained economic growth," Momma said,

     But he also said the core CPI is unlikely to rise further after clearing

the halfway hurdle of 1%, and its annual rate will stay below 1% in both fiscal

2018 and 2019.

     "It may not reach 2% for the next five years," he said.

     "The momentum toward achieving the 2% price target has not emerged and will

not emerge," Momma said, rejecting the BOJ's view that the momentum toward

achieving the 2% target is being maintained.

     He added that rising labor and energy costs have prompted transportation

firms and restaurants to raise prices but that consumer prices will not

drastically rise as companies are generally absorbing higher costs by increasing

productivity.

     At its April 26-27 policy meeting, the BOJ board is likely to maintain its

view that the bank can achieve the 2% target "around fiscal 2019," Momma said.

     In its quarterly Outlook Report due out after the meeting, the board will

probably project that the core CPI will rise 2.0% or 2.1% in fiscal 2020, he

said. So far the board has forecast that the index will rise 1.4% in fiscal 2018

and 1.8% in fiscal 2019.

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

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

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