MNI POLICY: Japan Nov CPI Drops 0.9%; Biggest Since Aug 2010

A weaker November core consumer price index was no great surprise to Bank of Japan officials who expected the inflation rate to continue in negative territory, MNI understands.

Bank officials expect the drop of prices to hit bottom in or after the first quarter of 2021 unless fresh factors emerge to put downward pressure on prices.

However, bank officials are paying attention to how prolonged weak core CPI increases downward pressure on the medium to long-term expected inflation rate, and the growth expectations on which bank officials are focused.

The nationwide core CPI fell 0.9% y/y in November for the fourth straight month after -0.7% in October, the biggest fall since August 2010 when the index fell 1.0%.

Energy prices fell 7.6% y/y in November, widening from -5.7% in October.

Despite the continued weak core inflation, the BOJ is unlikely to adjust monetary policy to address the issue at present, concentrating instead on maintaining the stability of financial markets and ensuring corporate financing.

The BOJ has noted that the momentum for price stability target has been temporarily lost.

CORE-CORE CPI FALLS

November core-core CPI, excluding fresh food and energy items - the BOJ's preferred gauge of the underlying trend - fell 0.3% y/y in November after falling 0.2% in October.

The drop in inflation was mainly due to the decline in energy items and accommodation costs caused by the government's "Go To Travel" campaign, with government subsidies lowering prices at hotels.