MNI POLICY: Tokyo Core CPI Turns Negative; First Fall In 3 Yrs

--Tokyo Core CPI Falls 0.1% Y/Y; First Negative Read Since Apr '17

By Hiroshi Inoue

     TOKYO (MNI) - Tokyo core inflation rate fell 0.1% year-on-year basis in

April, slowing sharply from 0.4% rise seen in March, data published Friday

showed, as lower prices for energy and services weighed.

     It was the lowest reading since April 2017 when core prices also fell 0.1%.

     Bank of Japan officials remain watchful over the weaker outlook,

discouraged by the lower costs for services, and hospitality prices, which had

been underpinned the BOJ hopes for higher prices.

     However, the BOJ is currently more focused on measures to facilitate

corporate financing to stabilize the financial markets, with slowing inflation a

problem for another day.

     --PRICE MOMENTUM LOST

     The BOJ has admitted that the momentum toward achieving the price stability

target is temporarily lost.

     Tokyo data points to a weak nationwide April inflation rate (due May 22)

which could also see the core number slowing from March's 0.4% gain.

     --LOWER ENERGY, OVERSEAS HOURS

     Price for energy items fell 4.3% y/y in April, widening from -3.8% in

March; its negative contribution widened to -0.24 percentage points in April

from 0.21 pp.

     The core CPI was also hit by weaker overseas holiday hours; -11.7% in

April, widening from -5.9%, as people restricted overseas traveling as well as

domestic trips.

     --WEAKER SERVICE PRICES

     Price for services rose 0.2% in April, slowing from +0.8%, and price for

eating and drinking services rose 3.1% in April, also slowing from +3.4%,

indicating corporate price revisions, which are usually seen in April, the

beginning of new fiscal year, were limited

     Processed food prices, which accounts for 15% of the total CPI, rose 1.0%

y/y in April, also slowing from +1.4% in March.

     BOJ officials are discouraged by the drop in core-core CPI excluding fresh

foods and energy, as the underlying trend that the officials focus on rose 0.2%

in April, slowing from +0.7% in March.

     On a bright note, prices for goods rose 1.0% in April, accelerating from

+0.8%, but it is uncertain whether goods prices will remain solid amid any

prolonged coronavirus impact.

--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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