MNI INSIGHT: BOJ To Look Through Lower Phone Costs On CPI

The Bank of Japan's outlook report is likely to say that the impact of lower mobile phone charges on consumer prices will be considerable but won't trigger deflation as the fee cuts are a one-off factor, MNI understands.

In the absence of latest data, bank officials plan to fall back on existing figures to explain the impact of the reduced phone charges on CPI to board members. They are considering estimating both the maximum and minimum impact based on several suppositions.

The BOJ's quarterly outlook report is due Apr. 27 but Tokyo CPI for the month will only be released later, on Apr. 30. Major carriers such as NTT Docomo, KDDI and SoftBank have responded to government pressure and cut mobile phone fees starting April. According to local reports, some cuts are as high as 20%.

The Ministry of Internal Affairs and Communications hasn't released how the government will incorporate new mobile phone charges into CPI, making it difficult for BOJ officials to gauge the impact, although the weighting is expected to be modestly increased. The BOJ's view is that the negative contribution from energy items will turn positive in or after April, easing downward pressure from mobile phone fees on CPI.

In presenting its conclusion in the outlook report, the bank will highlight the lower fees as a one-off factor and say it remains focused on the underlying trend in the inflation rate.

IMPORT PRICES

Bank officials are more watchful about the impact of higher import prices on CPI and corporate price-setting activity.

High import prices, due to the weak yen and rising crude oil prices, will worsen terms of trade and squeeze profits of non-manufacturers, mainly the service industry.

Bank officials are worried that the service industry, mostly restaurants and bars, will not be able to translate higher costs to prices as they have been hard hit by anti-Covid measures and need to recoup business.

Eating and drinking establishments in major cities have been asked to close at 2000 pm JST (1100 GMT) from Monday, an hour earlier than before, to contain the spread of the virus. People have also been asked to refrain from traveling long distances during the Golden Week holidays from Apr 29.