MNI POLICY: Japan Apr CPI Drops 0.2% Y/Y; 1st Since Dec 2016

By Hiroshi Inoue

     TOKYO (MNI) - Japan's core consumer price index fell 0.2% y/y in April due

to weaker energy item and service prices, the first since December 2016.

     The inflation rate is expected to be weaker in the coming months on the

back of the declines of crude oil price and of service prices and people will be

cautious about going out.

     The inflation rate forecast by the BOJ board members in this fiscal year is

a range of -0.3% to -0.7%.

     The core-core CPI, excluding fresh food and energy items, which BOJ

officials focus on to gauge the underlying trend rose 0.2% y/y, slowing from

+0.6% in March, recording the 34th straight rise.

     The slowing CPI was due to weaker energy items (-4.7% y/y in April vs.

-1.7% in March) and weaker goods prices (+0.7% in April vs. +0.9% in March). The

negative contribution from energy item widened to -0.37 percentage point from

-0.13 pp in March.

     The positive contribution from goods prices excluding perishable foods fell

to +0.10 pp from +0.42 pp in March. Prices for goods excluding perishable foods

rose 0.2% in April, slowing from +0.9% in March.

     --PROCESSED FOODS, SERVICES SLOW

     Prices for processed foods, accounting for 15% of the total CPI on which

BOJ officials focus, rose 0.8% in April, slowing from a 1.2% gain in March.

     Service prices rose 0.3% y/y, also slowing from 0.8% and prices for eating

out, another key BOJ focus, remained relatively firm, up 2.9% after +3.2% in

March.

     --CORONAVIRUS IMPACT WORRY

     Looking ahead, bank officials see service prices and prices for eating out

lacking momentum as people will remain cautious about going out and going to

restaurants amid concern over the second wave of the coronavirus.

     Sales at restaurants and department stores and in the transport sector are

falling following the drop in foreign tourists to Japan, and profits will not

recover sharply, although the government lifted the state of emergency in many

prefectures.

     Japan's Prime Minister Shinzo Abe confirmed Thursday that the state of

emergency remains in place for metropolitan Tokyo and Hokkaido, while that

status will now be lifted for Osaka, Kyoto and Hyogo prefectures.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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