MNI POLICY: Japan October CPI Higher; BOJ Caution Over Outlook

By Hiroshi Inoue

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

expected, but policymakers are little moved in their outlook as gains were

largely the result of the sales tax hike.

     The inflation rate continues to lack any meaningful upward momentum,

although the Bank of Japan sees it largely on track, even if not expecting any

sharp gains.

     BOJ officials are concerned over the sustainability of price rises as

sluggish consumer spending following the tax hike will impede corporate price

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

     Japan's core CPI rose 0.4% on year in October, a 34th straight rise, with

the pace accelerating from 0.3% in September but slower than the 0.5% seen in

August.

     The rise was indicated by the previously released October Tokyo core CPI,

which rose 0.5% in October following a 0.5% gain in September.

     --BETTER NEWS

     Despite a bigger negative contribution from energy prices in October of

-0.22pp, the core CPI accelerated from September on a positive contribution from

food price (ex-fresh) of +0.39 pp.

     The October index saw gains capped by the downward pressure from weaker

energy price (-2.7% on year in October vs -1.9% in September). Prices for

household durable goods, which rose 6.4% on year in October vs. +6.0% in

September.

     Also, prices for processed foods, accounting for 15% of the total CPI that

BOJ officials focus on, and for eating out accelerated.

     Prices for processed foods rose 1.4% in October, up from 1.1% in September,

and prices for eating out -- another key BOJ focus -- were up 3.2% in October,

accelerating from +1.0%, indicating firms transferred passed costs on.

     --FLAT OVERALL

     The overall CPI rose 0.2% on year in October, unchanged from +0.2% in

September. The contribution from the tax hike was +0.77 pp and the negative

contribution from free childcare was -0.57 pp.

--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

[TOPICS: MMJBJ$,M$A$$$,M$J$$$,MT$$$$]