MNI POLICY: Tokyo CPI Rise Unch; BOJ Sees Gradual Rise

--BOJ Still Cautious On Prices Ahead October Sales Tax Hike 

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan sees inflation picking up gradually in

coming months, despite prices in central Tokyo flatlining in July from June

levels, MNI understands, although no sharp acceleration is expected and there is

concern prices could slow around the time of the October consumption tax hike.

     Economists at the BOJ are looking at how capital investment by

non-manufacturers is helping drive increasing productivity gains, which is

absorbing higher input costs and impeding price rises - and where firms do try

and hike prices, there is a concern consumers will be driven away ahead of

further price hikes in October.

     The BOJ is also paying attention to worsening sentiment data, concerned

that it will weigh on consumer spending, eventually feeding through to weaken

corporate price pricing power.

     --JULY CPI RISE UNCHANGED

     July's Tokyo core consumer price index excluding fresh foods, a leading

indicator of the national inflation rate, rose 0.9% on year recording a 25th

straight rise, and unchanged from the 0.9% in June but slower than the 1.1% seen

in May.

     The Tokyo data suggests nationwide inflation for July will be unchanged

from June's +0.6%, running slower than the BOJ expected in April and opening the

way for a downward revision to the Bank's forecast at next week's policy meeting

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

underlying trend of inflation -- rose 0.8% on year in July, also unchanged from

both June and May. Prices for processed food, which accounts for 15% of the

total CPI that the BOJ focuses on, rose 1.2% on year in July, slowing from 1.3%

in June, indicating that corporate price hikes are still limited.

     --SERVICES INFLATION

     Services inflation, which account for just over a half of the CPI basket

the BOJ looks at, rose 0.4% on year in July, decelerating from 0.6% in June.

Prices for eating out rose 1.1% in July, slowing from 1.2% in June and the

recent peak of 1.3% in May, indicating retail price hikes peaked earlier this

year.

     Mobile phone charges fell 5.7% on year in July, building on a 5.8% fall

seen in June, but the BOJ don't see any lasting downside pressure as the

resultant increased in real incomes will have a steadying 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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