MNI POLICY: Japan Nov CPI Picks Up But BOJ Caution On Outlook

By Hiroshi Inoue

     TOKYO (MNI) - Japan's core consumer price index accelerated in November,

but Bank of Japan policymakers are little moved in their outlook as the expected

gains were largely the result of the sales tax hike.

     Despite the pick-up, the inflation rate still lacks upward momentum,

although the BOJ sees it as largely on track, even if not expecting any sharp

gains.

     --CORE CPI RISES

     Japan's core CPI rose 0.5% on year in November, a 35th straight gain, with

the pace accelerating from 0.4% in October but lower than the 0.9% seen in

April.

     The rise had been indicated by the previously released November Tokyo core

CPI, which rose 0.6% in November following a 0.5% gain in October.

     --WEAKER PRICE WORRY

     BOJ officials are concerned over the sustainability of higher prices as

sluggish consumer spending following the tax hike will impede corporate price

hikes, or even prompt firms to lower their retail prices.

     Economic data showing private consumption remained weak in October and

November, indicating that consumers are suffering from the drop in real income

caused by the tax hike.

     The tightness in labor market situation among manufacturers eased somewhat

due to the slowdown in overseas economies.

     The BOJ doesn't expect the easing labor market situation to filter through

to non-manufacturers immediately, where shortages continue.

     Negative contribution from energy prices in November was -0.17 percentage

point from -0.22 pp in October.

     --SOLID PROCESSED FOODS

     Prices for processed foods, accounting for 15% of the total CPI that BOJ

officials focus on, and for eating out remained firm.

     Prices for processed foods rose 1.4% in November, unchanged from +1.4% in

October, and prices for eating out -- another key BOJ focus -- were up 3.3% in

November, up from +3.2% in October, indicating firms passed costs on.

     The overall CPI rose 0.5% on year in November, up from +0.2% in October,

but saw gains capped by downward pressure from weak energy price (-2.1% on year

in November -2.7% in October). Prices for household durable goods, which rose

5.4% on year in November vs. +6.4% in October.s lower than the recent high of

+0.9% in April.

--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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