REPEAT: MNI: BOJ Outlook Remains Cautious As Japan CPI Slows

Repeats Story Initially Transmitted at 01:40 GMT Dec 21/20:40 EST Dec 20

--Japan Core CPI Slows Unexpectedly In November, Up 0.9% Y/Y

By Hiroshi Inoue

     TOKYO (MNI) - Japan's slowing core consumer prices in November has Bank of

Japan officials increasingly cautious about their inflation outlook, MNI

understands.

     BOJ officials expected the core CPI in November to have risen 1.0% on year

after the Tokyo November CPI, a leading indicator of nationwide CPI, rose 1.0%,

indicating the nationwide core CPI would also have risen 1.0%.

     However, the national average core CPI rose 0.9% on year in November for

the 23rd straight year-on-year rise but the pace slowed from +1.0% in October.

     --MIXED SIGNALS

     Although overall the report was discouraging, there were some bright spots,

with BOJ officials upbeat about the continued rise in prices for eating out.

Upward pressure on service prices, especially eating out, stemming from labor

shortages continued in November, but they haven't spread.

     Prices for eating out rose 1.1% on year in November, accelerating from

+1.0% in October.

     Prices for goods excluding fresh food rose 1.6% on year in November,

slowing from 1.9%, indicating that firms' cautious stance of raising retail

prices continued -- as indicated by the BOJ's Tankan survey earlier in the week.

     The prices for processed food (canned food, bread, snacks, beverages, etc),

which accounts for 15% of the total CPI and is focussed on by BOJ economists,

rose 0.8% on year in November after +0.7% in October.

     --LOWER ENERGY CONTRIBUTION

     The slowing November rise was also due to a drop in the positive

contribution from energy prices on CPI. The positive contribution in November

was 0.61 percentage point, down from 0.67 percentage point in October.

     Private sector economists expect the positive contribution of energy price

to fall gradually through 2019, before eventually turning negative.

     BOJ officials maintain the overall view that the momentum toward achieving

the 2% price target is maintained, as tight labor market conditions and the

positive output gap continue.

     However, prices haven't risen as much as the tight labor market conditions

and the positive output gap would imply. Bank officials will need to analyze the

background to continued weak price moves and their optimistic view may be

gradually undermined by future data.

     Those officials are now focused on developments for both the output gap and

inflation expectations, which, they believe, determine the momentum toward the

2% stability target. The next key data for them to study is the Tokyo CPI for

December, due out on Dec. 28.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com