REPEAT:MNI DATA ANALYSIS: BOJ Sees Spending Rise After Feb Dip

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan's supply-side Consumption Activity Index

posted the first month-on-month drop in two months in February, down a real 0.1%

on a seasonally adjusted basis following +0.4% in January, data released Friday

showed.

     However, BOJ officials maintain their view that private consumption will

stay on a moderate increasing trend in April onward.

     --MODERATE RISE INTACT

     They think the development in the index is consistent with the latest BOJ

assessment that "private consumption has been increasing moderately, albeit with

fluctuations, against the background of steady improvement in the employment and

income situation."

     BOJ officials, however, judge that private consumption, which accounts for

about 60% of the total domestic output, still lacks momentum as income is slow

to rise. Many firms are cautious about raising base wages but the officials do

not think consumption will weaken.

     "Private consumption isn't weak but it hasn't gained momentum. Higher

income will have a positive impact on household spending but it remains

uncertain how higher income will actually increase consumer spending," a person

who is familiar with BOJ thinking said.

     He added that the underlying trend of private consumption remains solid.

     Looking ahead, the BOJ is unlikely to change its assessment of private

consumption anytime soon.

     BOJ officials expect consumer prices to continue rising gradually but they

don't expect consumer spending to be seriously hit the rising cost of living on

the premise that more firms will raise wages.

     --MIXED SPENDING DATA

     Among the government data released Friday, the Household Consumption Trend

Index, indicating per-household spending patterns, fell a real 1.5% on year in

February following a 0.7% drop in January.

     The Total Consumption Trend Index, which is designed to show similar

consumption patterns in the total domestic output, rose a real 0.9% on year in

February after rising at the same rate in the previous month but it fell 0.1% on

month.

     Data released last month showed retail sales rose 1.6% in February, posting

the fourth straight year-on-year rise, but it was largely supported by high

prices of fuels and vegetables. Excluding gasoline and heating oil, retail sales

gained only 0.4% on year last month.

     On the month, retail sales rose 0.4% on a seasonally adjusted basis in

February, the first m/m rise in two months after -1.6% in January.

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