MNI POLICY: Tokyo Nov Core CPI Down on Energy, Accommodation

Tokyo's core inflation rate fell for the fourth straight month in November, weighed down by weak prices across the accommodation and energy sectors as well as services, including food and beverage.

Bank of Japan officials expected Japan's inflation rate to be in negative territory due to the recent drop in crude oil prices and the Government's "Go To Travel" campaign.

Bank officials maintained the view that the core CPI, excluding the special factors, remained firm but they are paying attention to how a weaker inflation rate will lower expectations of medium to long-term inflation and growth.

Core inflation in the capital fell 0.7% y/y in November and points to a lower nationwide inflation rate, with the core number likely to drop from October's -0.7%. November's -0.7% is the biggest fall since May 2012 when it fell 0.8% y/y.

CORE-CORE REMAINS NEGATIVE

Core-core CPI, which excludes fresh food and energy and is the BOJ's key inflation indicator, also fell 0.2% y/y in November, unchanged from -0.2% in October.

Prices for accommodation fell 34.4% y/y in November, slightly narrowing from a 37.1% fall in October. The negative contribution narrowed to 0.55 percentage points from 0.59 pp previously.

Service prices fell 0.9% in November, also narrowing from a 1.0% fall in October, but prices for eating and drinking rose only 0.2%, slowing from +0.8% in October, indicating face-to-face services continued to be hit by the coronavirus disruptions.

Prices for energy items fell 8.9% y/y in November, widening from -5.6% in October, as the negative contribution to the overall number widened to 0.47 percentage points from -0.29 pp.

At present, however, the BOJ will look through the lower inflation as it focuses on providing liquidity to the banking system to ensure lending gets to the real economy, and the financial system remains stable.

Bank officials are also paying attention on the impact on prices of the Government's decision to partly suspend the "Go To Travel" subsidies, and the Tokyo decision to request that restaurants which serve alcohol shorten their operating hours for about three weeks starting on Nov. 28.