MNI POLICY: Japan June CPI Rise Slows; BOJ Sees Gradual Rise

By Hiroshi Inoue

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

Japan officials saw enough bright spots in the data to still expect a gradual

rise in inflation ahead, MNI understands.

     Core prices were 0.6% higher on year in June, a 30th straight rise,

decelerating from May's 0.8% and in line with BOJ expectations after data

earlier this month showed Tokyo core CPI slowing to 0.9% y/y in June, after

rising 1.1% in May.

     Better news for the BOJ within the data included higher prices for

processes foods, which accounts for 15% of the total CPI that BOJ officials

focus on, higher by 1.2% on year in June, accelerating from +0.9% in May.

     Mobile phone charges fell 5.8% on year in June, decelerating further from

-4.3% in May. The fall was expected following recent changes to mobile phone

plans, but BOJ officials judged that the downward pressure on the inflation rate

was less than initially expected.

     Less encouraging was the slowdown in prices for dining out, up 1.0% on year

as against a rise of 1.1% in May, suggesting to Bank officials upward pressure

from recent retail price hikes in the sector may have peaked.

     Goods prices excluding volatile fresh food prices rose 0.8% on year in

June, also slowing after a 1.2% gain in May.

     --NO SWIFT UPSIDE

     The BOJ sees the underlying trend still solid, but don't expect a sharp or

swift pick-up in pace in the coming months.

     Although there is no strong causal link between Japan's corporate good

price index and CPI, BOJ officials are certainly aware that June's -0.1% y/y

CGPI print, the first year-on-year drop in 30 months, is less than encouraging

for the overall inflation outlook.

--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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