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(Z1) Off Lows, But Remains Weak


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Bullish Price Sequence

Repeats Story Initially Transmitted at 02:51 GMT Oct 30/22:51 EST Oct 29
By Max Sato
     TOKYO (MNI) - The Bank of Japan board is fully expected to maintain its
monetary policy targets at its two-day meeting ending Tuesday, as it has since
changing the policy framework in September last year, but the market will focus
on how far it cuts its core CPI forecast and whether dissent to the no-change
policy decision will result in a specific proposal to increase monetary
     The board is likely to the maintain its policy targets of guiding the
overnight interest rate at -0.1% and the 10-year bond yield around zero percent.
But the board is again likely to be divided after the 8-to-1 decision in
     Board member Goushi Kataoka, who dissented last month, is expected to do so
again this month.
     Last month, Kataoka, who just joined the board in July, argued that the
current scale of already large monetary easing was insufficient to meet the
central bank's 2% policy goal by the current target date of "sometime in fiscal
     He didn't make any counterproposal then, so the focus will be on whether he
will make a specific proposal for more easing this time, and whether any other
board members will join his dissent, although this is seen as unlikely.
     In its quarterly Outlook Report, to be released after the meeting, the
board is expected to acknowledge that the economy is continuing to grow at a
modest pace, backed by solid exports and factory output as well as resilient
consumer spending, while admitting that price pressures are weaker than
     The board's median forecast for the core CPI (excluding fresh food prices)
in the current fiscal year is expected to be revised down from the 1.1%
projected in July to below 1.0%.
     It is unclear how far below 1% the board will set its new median forecast.
The lower the forecast, the greater the pressure it will put on the board to
start considering a further delay in the expected date for meeting its 2%
inflation target, currently set at "sometime in fiscal 2019." Another delay
would be the seventh since the BOJ adopted the 2% target and began large-scale
easing in 2013.
     A sharp revision of the core CPI forecast below 1% for this fiscal year
would also reinvigorate market debate on whether the BOJ's 2% inflation goal is
realistic, particularly given the near-term inflation outlook.
     Japanese consumer inflation has stagnated below 1% due in part to discount
sales at supermarket chains and the lingering effect of competition between
mobile telephone carriers. The slow inflation pace will continue into next year
as support from higher energy prices fades in the year-on-year calculations.
     Core CPI, which excludes volatile fresh food prices, rose 0.7% on year in
September, with the pace of increase unchanged from that in August, data
released Friday show. The September result was weaker than the MNI median
forecast of +0.8%.
     Energy prices rose 7.6% on year in September after rising 7.0% in August,
while prices for processed food including alcoholic beverages gained 1.0% after
a 0.9% increase the previous month. Partly offsetting these increases, mobile
communications fees fell 5.4% in September, the same pace of decline as in
August, indicating their negative contribution may be peaking.
     Going forward, the base effect of higher energy prices will fade and keep
the CPI rise under 1% next year.
     "If gasoline prices stay around the current levels, their positive
contribution to total CPI will peak out in November or December," said an
official at the Ministry of Internal Affairs and Communications that compiles
CPI data.
     "The base-year effect of the April hike in electricity charges will
continue until next spring, but given the high weighting of gasoline prices the
pace of increase in consumer prices is likely to be slow."
     The support energy prices give to headline CPI is significant, as shown by
the fact that core-core CPI, which excludes fresh food and energy, rose just
0.2% on year in September, a rate unchanged from August.
     The average economist forecast for core CPI is only 0.62% for fiscal 2017
ending in March 2018 and just 0.82% for fiscal 2018, according to the latest
monthly ESP Forecast Survey of 41 economists by the Japan Center for Economic
     At around 1200 JST (0300 GMT) Tuesday, the BOJ will release the outcome of
the two-day policy meeting and the quarterly Outlook Report in which it updates
the board's projections for GDP and CPI through fiscal 2019 with its medium-term
risk analysis.
     The previous policy meeting on Sept. 20-21 ended at 12:08 JST (0308 GMT),
and the last meeting with the release of the Outlook Report on July 19-20
finished at 12:03 JST (0303 GMT).
     Later at 1530 JST (0630 GMT), BOJ Governor Haruhiko Kuroda will hold a news
conference to discuss the board's decision and outlook.
     After the last policy meeting on Sept. 20-21, Kuroda told reporters that
the central bank won't let a rise in U.S. interest rates lead to a premature
rise in domestic borrowing costs as there is still a long way to go to reach the
bank's 2% inflation target.
     The governor explained the slow progress in achieving stable 2% inflation
by pointing to the stubborn deflationary mindset among businesses and households
as well as consumers' reluctance to accept higher prices when wage growth
remains low.
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email:
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--MNI Beijing Bureau; +86 (10) 8532-5998; email: