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Tokyo's core inflation rate for June was unchanged from a year earlier, improving from May's -0.2% as the negative contribution from energy items narrowed.
The Bank of Japan maintains the view that the underlying trend of inflation, excluding special factors, remains solid and they expect core CPI to be around zero percent in the short run but for the CPI to rise gradually.
BOJ board members will review their medium-term economic growth and inflation rates at the July 15-16 policy-setting meeting.
The focus is whether the median forecast for inflation will be revised up from +0.1% made in April.
Downward pressure from the drop in mobile phone charges continues, but some of this will be offset by upward pressure from the rise in raw materials while the positive contribution from energy items will increase.
As for the consumer price index, the government will change the base year to 2020 from 2015 and increase the weight of mobile phone charges, possibly increasing downward pressure on CPI.
Prices for mobile phone charges fell 27.9% y/y in June, unchanged from in May's -27.9% and the negative contribution from mobile phone charges was also unchanged at -0.44 percentage points.
The BOJ had estimated the impact of lower mobile phone charges in a range of -0.5 to -1.0 pps.
Prices for energy items fell 0.4% y/y in June, narrowing from -1.3% in May. The negative contribution from energy items narrowed to -0.02 pps in May from -0.07 pps.
Core-core CPI, which excludes fresh foods and energy and is the BOJ's key inflation indicator, was unchanged in June after falling 0.1% in May.
Processed food prices, which accounts for 15% of the total CPI that BOJ officials are focused on, fell 0.6% y/y in June following -0.3% in May. Prices for accommodations rose 0.9% y/y in June, unchanged from May's 0.9%.
Service prices fell 0.4% in June, narrowing from -0.6% in May, indicating that demand for services is recovering gradually.
Prices for eating and drinking services rose 0.1% y/y in June after being unchanged in May, showing that price cuts to stimulate demand have not expanded in the face-to-face services sector.