MNI POLICY: Tokyo June Core CPI Rises, Far From BOJ Target

By Hiroshi Inoue

     TOKYO (MNI) - Tokyo core inflation rose 0.2% y/y in June for the second

straight rise as lower prices for goods prices were offset by smaller decline in

energy item, underlining the Bank of Japan's view that momentum towards the 2%

price target has lost momentum. 

     Core prices rose 0.2% in May after falling 0.1% in April.

     Tokyo data points to a weak nationwide June inflation rate (due July 21),

although the core number could pick up from May's 0.2% fall.

     Bank of Japan officials remain watchful and still see momentum towards the

2% price target as temporarily lost.

     Japan's core inflation rate "is likely to be negative for the time being,

mainly affected by Covid-19 and the decline in crude oil prices. Thereafter,

with the economy improving, the rate of change is expected to turn positive and

then increase gradually," the BOJ has warned.

     Officials at the Bank are currently focusing on providing liquidity to the

banking system to ensure lending gets to the real economy and the financial

system remains stable.

     --SOLID CORE-CORE CPI

     Core-core CPI, excluding fresh foods and energy, is the underlying trend

that the officials focus on and it rose 0.4% in June, following a 0.5% gain in

May and 0.2% rise in April. Prices for energy items fell 3.5% y/y in June,

improving -4.7% in May; its negative contribution narrowed to -0.19 percentage

points in June from 0.26 pp.

     --SOLID SERVICE PRICES

     Services rose 0.3% in June, slowing from the 0.4% rise in May, while price

for eating and drinking rose 2.9% in June, unchanged from May's level, as firms

appear to leave prices unchanged, despite lower demand.

--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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