MNI POLICY: Tokyo CPI Higher But BOJ Cautious Over Inflation

     TOKYO (MNI) - The pace of the annual inflation rate in Tokyo, a leading

indicator of the national average, accelerated in September from August,

supporting the Bank of Japan view of a gradual rise in consumer prices amid a

modest but sustained economic recovery.

     However, BOJ officials remain cautious about the price outlook as prices

have been slow to respond to an economic recovery and tightening labor market

conditions.

     The BOJ will maintain the view "inflation expectations have been more or

less flat" at its key policy meeting scheduled on Oct 30-31.

     In central Tokyo, the core consumer price index excluding fresh food rose

1.0% on year in September for the 15th straight year-on-year rise, with the pace

of increase accelerating from +0.9% in August, government data released Friday

showed.

     The core-core CPI (excluding fresh food and energy) -- a key indicator of

the underlying trend of inflation -- rose 0.7% on year in September, also up

from +0.6% in August.

     The CPI in the capital is a leading indicator of the national CPI for

September due out on Oct. 19. It indicates that the core CPI in September will

rise from +0.9% on year in August.

     The BOJ's cautious view on price outlook is also based on the latest data

that the 10% trimmed mean of the total CPI rose 0.5% on year in August,

unchanged from +0.5% in July and still below the recent peak of +0.8% seen at

the start of the year.

     Figures are the weighted averages of the year-on-year price changes in

individual items making up the CPI. Items are arranged in ascending order of

their year-on-year rate of price change and those falling into the upper and

lower 10% tails by weight are trimmed.

     The diffusion index, showing the share of increasing items minus the share

of decreasing items, fell to 11.1 in August from 14.7 in July and 17.0 in June.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

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