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Repeats Story Initially Transmitted at 03:01 GMT Dec 18/22:01 EST Dec 17
By Hiroshi Inoue
     TOKYO (MNI) - Bank of Japan officials are somewhat heartened to see that
near-term corporate inflation expectations have edged up from three months ago
but they remain cautious about the overall price outlook, which has been slow to
pick up.
     BOJ officials are fully aware that inflation expectations will not rise at
a face pace in the face of the stubborn deflationary mindset among businesses
and concerns about the sustainability of social security programs among
     But the officials still believe that momentum toward achieving the bank's
2% inflation target is intact, patiently watching the stimulatory effect of
large-scale monetary easing on wage hikes and retail price markups amid the
sustained but modest economic recovery.
     The BOJ on Monday released the CPI outlook among companies polled in its
quarterly Tankan survey for December, conducted from Nov. 14 to Dec. 14. The
main parts of the survey on business sentiment, investment plans, labor and
product supply and demand conditions among other topics were released Friday.
     In the December Tankan survey, companies on average revised up their
expectations for the consumer price index in a year's time from the previous
Tankan survey, but left their inflation outlook for three and five years ahead
unchanged from September.
     Firms on average expect the annual consumer inflation rate to stand at 0.8%
a year from now, up from the 0.7% projected in September. It was the first rise
in expectations since June, when the near-term price outlook was revised up to
0.8% from 0.7% in March.
     But BOJ economists are more focused on inflation expectations three and
five years ahead in assessing inflation trends. Firms' inflation forecasts for
three and five years ahead were unchanged at 1.1% each in December.
     Japan's national average core CPI (excluding fresh food) rose 0.8% on year
in October, marking the 10th straight year-on-year rise after +0.7% in
     Excluding the upward pressure from energy prices, the underlying price
trend has shown a slow improvement. The core-core CPI (excluding fresh food and
energy) rose 0.2% on year in October after rising 0.2% in September.
     BOJ officials hope the pickup in the CPI, although slow, helps support the
move among some firms to raise wages at annual labor management talks early next
     The wage hikes in April 2017 were based on weak consumer prices in calendar
2016. Last year, the total consumer price index on average fell 0.1% from a year
before. By contrast, total CPI has risen 0.41% on average in the first 10 months
of this year.
     A faster pace of wage increases is the key to making businesses and
households believe that prices will rise steadily every year toward the central
bank's elusive inflation goal of 2%.
     Inflation expectations have stopped falling but they also do not show a
clear uptrend, BOJ economists have judged.
     They will further analyze the situation by looking at household inflation
expectations included in the bank's quarterly consumer sentiment survey due on
Jan. 11.
     Some data showed that the underlying trend of prices has shown a gradual
     The 10% trimmed mean of the total CPI rose 0.5% on year in October,
unchanged from +0.5% in September after falling from +0.6% in August. The pace
of increase has accelerated from +0.1% seen earlier this year.
     Figures are the weighted averages of the year-on-year price changes in
individual items making up the CPI. Items are arranged in ascending order of
their year-on-year rate of price change and those falling into the upper and
lower 10% tails by weight are trimmed.
     The diffusion index, showing the share of increasing items minus the share
of decreasing items, rose to 24.1 in October, after falling to 18.7 in September
from 22.9 in August.
     In addition, the output gap of the economy -- one of the key factors that
affect inflation -- was 1.22 percentage points in the April-June quarter, the
third straight positive figure following +0.75 in January-March and +0.45% in
the final quarter of 2016.
     The improvement in the output gap is expected to increase upward pressure
on consumer prices and inflation expectations with a lag of a few quarters.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email:
--MNI Beijing Bureau; +86 (10) 8532-5998; email:

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