REPEAT: MNI BOJ INSIGHT: Aug Data Back Modest GDP Outlook

Repeats Story Initially Transmitted at 04:12 GMT Sep 29/00:12 EST Sep 29

By Hiroshi Inoue

     TOKYO (MNI) - Solid factory output and soft household spending data for

August support the Bank of Japan board's assessment that the modest growth is

continuing while the pace of inflation remains slow despite price hikes by some

firms, BOJ officials believe.

     September data are not available until late October but BOJ officials

believe a moderate economic expansion will continue during the third quarter

based on their informal surveys of firms this month.

     The focus is on whether the year-on-year rise in consumer prices will

accelerate in the fourth quarter from 0.7% in the summer.

     A quick look at August indicators suggest the impact on the real economy

from the tensions between North Korea and the U.S. over Pyongyang's nuclear arms

threat has not fully emerged, BOJ officials believe.  //HAS NO FULLY EMERGED OR

HAS NOT EMERGED?//

     Despite lingering geopolitical risks, the foundation for the economic

recovery based on a virtuous circle from income to spending appears to be

intact, they believe.

     Government data released Friday showed industrial production posted the

first month-on-month rise in two months in August, up a seasonally adjusted 2.1%

after -0.8% in July.

     Industrial production is expected to fall 1.9% (revised up from -3.5%

predicted last month) in September and rise 3.5% in October, according to the

government forecast based on its survey.

     Based on this projection, production in the July-September quarter is

estimated to inch up 0.1% on quarter, which would be the sixth straight

quarterly increase, but much slower than the 2.1% gain in April-June.

     Government data released Friday pointed to weaker-than-expected household

spending in in August amid a drop in summer bonuses compared to last year and

higher medical costs.

     Real average household spending posted the first year-on-year rise in two

months, up 0.6% in August, half the MNI survey median forecast for a 1.1% gain,

after falling 0.2% in July.

     The core spending index, which excludes housing, motor vehicles and other

volatile items (close to private consumption patterns in GDP data), fell 0.1% on

month in August on a seasonally adjusted basis, the second straight

month-on-month drop following -0.3% in July.

     Retail sales rose 1.7% on year in August, the 10th straight year-on-year

gain, led by continued strong demand for automobiles, while slumping 1.7% from

the previous month on a seasonally adjusted basis.

     Long rainy days in August had a mixed impact on department store sales,

dampening sales of summer clothing while supporting demand for autumn wear.

     On the price front, the pickup has been slow but there are signs that more

firms are raising prices.

     Government data show the national average core CPI (excluding fresh food

but including energy prices) rose 0.7% on year in August, the eighth straight

year-on-year rise, accelerating from 0.5% in July.

     The increase in August was mainly led by higher electricity and gas charges

as well as gasoline prices. But there are also signs of higher goods prices in

August.

     National CPI goods prices excluding fresh food rose 1.4% on year in August,

up from  1.1% in July. Overall goods prices also rose 1.4% on year after rising

1.0% the previous month.

     BOJ economists have been expecting the impact of the past yen's fall to

gradually pushed up durable goods prices but the pace of price rises has been

slow.

     Service costs, which account for a little over half of the CPI basket, were

unchanged on year in August after falling 0.1% in July, showing a tighter labor

supply has been slow to push up service prices.

     Excluding the upward pressure from energy prices, the underlying price

trend has shown only slow improvement. The CPI excluding fresh food and energy

(the core-core CPI) rose 0.2% on year in August, after rising 0.1% in July.

     In July, the BOJ board revised down its median forecast for core CPI for

the current fiscal year to 1.1% from 1.4% in April.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

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

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com