MNI POLICY: Japan Jan CPI Rise Accelerates But BOJ Cautious

By Hiroshi Inoue

     TOKYO (MNI) - Japan's core consumer price index accelerated in January but

Bank of Japan officials are little moved in their outlook as they are still

concerned that sluggish private spending will slow corporate price hikes, MNI

understands.

     Japan's core CPI rose 0.8% y/y in January, a 37th straight gain, with the

pace accelerating from 0.7% in December but lower than the 0.9% seen in April

2019.

     The gain was boosted by higher energy prices (+0.8% y/y in January vs.

-0.6% in December) and solid service prices.

     The contribution from energy turned positive (+0.07 percentage point) in

January from negative (-0.05 pp in December).

     Prices for goods rose 1.3% y/y in January, slowing from +1.5% in December.

     But prices for goods excluding perishable foods rose 1.6% in January,

accelerating from +1.4% in December.

     --SOLID PROCESSED FOODS

     Service prices rose 1.0% in January after rising 1.1% in December.

     But prices for processed foods, accounting for 15% of the total CPI which

is the BOJ officials focus, rose 1.5% in January following +1.5% in December.

     Prices for eating out, another key BOJ focus, remained firm, up 3.3% in

January following a 3.3% gain in December, showing corporate retail price hikes

are continuing.

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

focus on to gauge the underlying trend rose 0.8% y/y in January, slowing from

+0.9 in December, for the 31st straight rise.

     --CORONAVIRUS IMPACT WORRY

     Despite the solid prices, bank officials are worried that service prices

could slow in the coming months in the wake of the drop in Chinese tourists in

Japan due to the coronavirus outbreak.

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

falling following the drop in foreign tourists in Japan, and profits continued

to decline which in turn will lower retail prices.

     The infectious disease has been confirmed in Japan, increasing the risk

that Japanese consumers will refrain from going out and spending.

     Many companies announced the cancellation of events and entertainments amid

the expanding coronavirus outbreak.

     Economic data showed private consumption remained weak after the sales tax

hike on Oct. 1.

     Bank officials are worried that the impact of the coronavirus will increase

downward pressure on consumer spending and retail prices.

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

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

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