REPEAT: MNI ANALYSIS: BOJ Sees FY18 Markups Despite Soft CPI

By Hiroshi Inoue

     TOKYO (MNI) - The slower inflation in Tokyo in Friday's data indicates the

national average CPI may also show a softer tone in March but Bank of Japan

officials still expect more firms to raise prices in fiscal 2018 starting in

April, MNI understands.

     The officials believe the momentum toward achieving the bank's 2% inflation

target is maintained.

     In central Tokyo, the core consumer price index excluding fresh food rose

0.8% on year in March for the ninth straight year-on-year rise, but the pace of

increase decelerated from +0.9% in February.

     It was mainly in payback for temporary price-boosting factors in February,

when Chinese tourists rushed to Japan during the Lunar New Year holidays,

pushing up the prices for accommodations here. Strong Japanese demand for

traveling to South Korea for the PyeongChang Winter Olympics also led to higher

prices for overseas tours in February.

     --SLOWER ENERGY PRICES

     But at the same time, energy prices also showed a slower 5.8% rise in March

after +6.8% in February, meaning the upward pressure on the core CPI will wane

in the coming months. The March national average CPI, due on April 20, may show

a slowdown from February's 1.0% rise in the core reading.

     Government data released Wednesday showed a sixth consecutive weekly drop

in the national average regular gasoline price in Japan this week.

     The prices of goods excluding volatile fresh food rose 1.5% on year in

March, with the pace of increase decelerating from +1.6% in February. The

service prices, which account for just over a half of the CPI basket, remained

depressed, rising 0.3% on year in March, slowing from +0.4% in February.

     The prices for household durable goods rose 0.7% on year in March, slower

than +2.6% in February, indicating that companies are generally cautious about

passing higher costs onto consumers amid sluggish private consumption.

     --TRANSPORTATION, RESTAURANTS UP

     On the upside, however, the March Tokyo CPI showed transportation costs

rose 12.1% on year, up from +10.3% in February, and that restaurant bills gained

0.6%, also up from +0.4% in the previous month.

     This confirms some companies are already passing higher labor and raw

material costs onto consumers and that other firms may follow suit.

     In fiscal 2017 ending in March, the Tokyo core CPI rose 0.4% from the

previous year, the first rise in three years after falling 0.4% in fiscal 2016

and being unchanged in fiscal 2015.

     But the narrower price indicator showed Japan needs some more time before

inflation is well anchored around 2%.

     The core-core CPI (excluding fresh food and energy) -- a key indicator of

the underlying trend of inflation -- rose just 0.1% in fiscal 2017, slowing from

+0.2% in fiscal 2016 and +0.7% in fiscal 2015.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com