MNI POLICY: Japan Aug CPI Rise Slows; BOJ Cautious View Intact

By Hiroshi Inoue

     TOKYO (MNI) - Japan's core CPI slowed in August, as expected, but Bank of

Japan officials are still concerned there could be a further deceleration in

coming months as private consumption falls off after the October consumption tax

hike, MNI understands.

     Japan's core CPI rose 0.5% on year in August, for the 32nd straight rise

but the pace slowed from +0.6% in July and in June, and the slowdown was

indicated by the August Tokyo core CPI, which slowed to +0.7% in August from

+0.9% in July.

     There was some better news for the BOJ within the data, including higher

prices for household durable goods, which rose 5.4% on year in August vs. +3.8%

in July.

     However, prices for other major items slowed in August from the previous

month. Prices for processes foods, accounting for 15% of the total CPI that BOJ

officials focus on, rose 1.1% in August, slowing from 1.3% in July.

     Prices for eating out -- another key BOJ focus -- were up 0.9% in August,

also slowing from 1.0%, indicating corporate price hikes may have peaked.

     Energy costs fell 0.3% on year in August (vs. +0.6% in July) and their

contribution turned to -0.02 percentage point in August, reversing from +0.04

percentage point in July.

     The BOJ has said that the front-loaded rise in demand before the

consumption tax hike to 10% from 8% on Oct. 1 will be smaller than the previous

hike in 2014, indicating a post-hike dip in demand will also be limited.

     However, the BOJ continue to focus on the front-loaded rise in non-durable

goods and any pre-tax hike impact on private spending.

     If private consumption slows, it would impede corporate price hikes, prompt

firms to lower retail prices, which in turn will push down Japan's inflation

rates, the Bank fears.

--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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