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The fall in the Tokyo core inflation rate in May was unchanged from April's -0.2%, weighed down by lower mobile phone charges, although the negative contribution from energy items narrowed.

Despite the 10th consecutive drop in the CPI, Bank of Japan officials maintain the view that the underlying trend of inflation rate, excluding special factors, remained solid.

Mobile phone charges fell 27.9% y/y in May, widening from -26.5% in April, and the negative contribution from mobile phone charges also widened to -0.44 percentage points from -0.41 pps. 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 1.3% y/y in May, narrowing from -4.7% in April. The negative contribution from energy items narrowed to -0.07 pp in May from -0.24 pp.

BOJ officials expected the negative contribution from energy items to wane in or after April, increasing upward pressure on the CPI.

But the BOJ had expected the CPI to be slightly negative for the medium term and the bank also warned that the CPI was likely to revised down due to the change of the base year to 2020 from 2015.

Bank officials continue to pay attention to whether the weak inflation rate will lower corporate growth expectations and people's inflation expectations.

The BOJ board's median forecast for inflation rate this fiscal year is +0.1%, revised down from +0.5% in January.

Core-core CPI, which excludes fresh foods and energy and is the BOJ's key inflation indicator, fell 0.1% y/y in May, after being unchanged in April.

Processed food prices, which account for 15% of the total CPI that BOJ officials are focused on, fell 0.3% y/y in May following -0.2% in April.

Prices for accommodations rose 0.9% y/y in May, narrowing from a 3.1% rise in April.

Service prices fell 0.6% in May, widening slightly from -0.5% in April and prices for eating and drinking services were unchanged y/y in May, after being unchanged in April.