MNI POLICY: BOJ June Minutes: CPI To Rise But Outlook Cautious

     TOKYO (MNI) - Many of the Bank of Japan's nine policy board members

believed the overall economic recovery should lead consumer prices higher toward

the bank's 2% inflation target, but some members remained cautious in the face

of the stubborn deflationary mindset and slow wage growth, the minutes of the

June 14-15 meeting released Friday showed.

     At the June meeting, the board decided in an 8-to-1 vote to maintain its

current monetary easing stance under the yield curve control framework it

adopted in September 2016, while projecting the moderate economic recovery will

continue despite some soft spots.

     --DEFLATIONARY MINDSET

     Some members blamed "short-term factors," such as the yen's appreciation

through early spring (lowering import costs) and price declines in some CPI

items with large fluctuations, for the sluggish growth in the CPI since the

start of fiscal 2018.

     They also noted stiff competition among retailers -- mainly due to

consumers' preference for lower prices of goods and services -- had discouraged

firms from raising prices at the start of the fiscal year on April 1.

     From a long-term perspective, some members said, the weak price

developments were due to the fact that "the mindset and behavior based on the

assumption that wages and prices would not increase easily had been deeply

entrenched among firms and households."

     --COST-PUSH INFLATION

     But many members said the improvement in the output gap continued to exert

upward pressure on wages and prices.

     For example, some members added that passing of the rise in labor costs on

to sales prices by firms had been partly observed, mainly in the services

sector, and prices mainly of dining-out and delivery services had been seeing a

steady acceleration in their year-on-year rates of increase.

     --SLOW WAGE GROWTH

     Some members pointed out that it was a positive development that wages of

non-regular employees kept rising "noticeably" amid the continued tightening of

labor market conditions.

     But one member said the pace of wage increases likely would persist because

the rate of base pay increase resulting from this spring's annual

labor-management wage negotiations was "only slightly higher" than that of last

year.

     A different member noted that there was a labor surplus in industries and

types of jobs with high wage levels while labor shortage was becoming more acute

in those with low wage levels. This might be "constraining upward pressure on

overall wages."

     Looking ahead, members shared the view that employee income was likely to

continue to "increase steadily" as labor market conditions kept tightening and

corporate profits improved.

     --MODERATE SPENDING GROWTH

     One member said that, in order to stimulate household consumption, it was

important to raise wages to a level that outpaced inflation by lifting labor

productivity.

     Members concurred that private consumption was likely to "follow a moderate

increasing trend," supported by an increase in employee income and the wealth

effects stemming from the past rise in stock prices, as well as by replacement

demand for durable goods.

     One member said that the rise in nominal wages -- albeit at a moderate pace

-- was likely to positively influence the underlying trend in private

consumption, but the outlook for private consumption "could not be viewed

optimistically" as the sales tax hike was scheduled for fiscal 2019.

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

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