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Japan June Inflation Accelerated; +2.2% Y/Y


Attempting To Break Above 1.1100

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Repeats Story Initially Transmitted at 03:12 GMT Dec 15/22:12 EST Dec 14
By Hiroshi Inoue
     TOKYO (MNI) - Bank of Japan officials took particular note of the Tankan
December business survey results showing labor shortages in all industries have
worsened from three months ago and that costs are rising at a faster pace than
firms have been passing on in higher sales prices, MNI understands. 
     The officials acknowledged that it remains to be seen whether labor
shortages and higher costs will prompt more firms to raise wages and retail
prices, but remained hopeful on the outlook. 
     The BOJ officials also noted that the Tankan data confirmed that the
virtuous cycle from rising profits to solid business investment remains intact
and will support a continuation of the modest economic recovery that the BOJ
board expected in October.
     --Labor Shortages More Serious
     The BOJ survey showed that labor shortages at all firms became more serious
compared to three months ago, squeezing profit margins while exerting pressure
on firms to raise wages to secure quality workers.
     In the December Tankan, the employment index -- based on reports from all
firms of excess employment minus insufficient employment - fell to -31 in
December from -28 in September, the lowest level since February 1992,
underscoring the continued tightening of labor supply.
     As an indicator of the inflation outlook, the diffusion index on production
capacity (excess capacity minus insufficient capacity) fell further to -5 in
December from -3 in September and -2 in June, meaning more firms reported
insufficient capacity. This suggests rising pressures on consumer prices with a
six month lag, the BOJ believes.
     --Higher Costs for Firms, Big and Small
     The Tankan survey also showed that manufacturers continue to face rising
labor and import prices, exerting pressure on them to raise producer prices, BOJ
officials believe.
     The Tankan showed the number of companies that are suffering from higher
energy and labor costs increased from three months earlier. It also showed that
firms have not fully raised the prices of their goods and services to
     The index for input prices (costs) among major manufacturers accelerated to
+18 in December from +13 in September, while the index showing output (sales)
prices among major manufacturers rose only slightly to +1 from zero in
     BOJ officials are also focused on data showing the corporate inflation
outlook, which is part of the December Tankan survey but will not be released
until Monday. They only expect a gradual pickup in the price outlook.
     In the September Tankan survey, companies on average revised down their
expectations for the consumer price index one year ahead from the previous
Tankan survey, but left their inflation outlook for three and five years ahead
unchanged from June.
     --Capex Plans Down, Not Out
     As expected, the downward revision to capital investment plans by major
manufacturers -- the key indicator of overall capex -- came within historical
patterns, indicating that demand for new equipment and offices remains solid,
BOJ officials confirmed.
     The Tankan showed that capital investment plans among major manufacturers
for fiscal 2017 rose 10.2% on year, revised down from a rise of 14.1% projected
by those firms in September. 
     Plans among all firms to invest in equipment rose 6.3% on year in December,
revised up from +4.6% in September while capex plans by all major firms were
revised down slightly to +7.4% from +7.7% three months ago.
     --Sentiment Up, Cautious Ahead
     BOJ officials were heartened by the continued improvement in business
sentiment in December. 
     The diffusion index for sentiment among major manufacturers rose to an
11-year high of +25 in December from +22 in September, coming in stronger than
the MNI survey median economist forecast of +23. It was the fifth quarterly rise
in a row.
     The index is projected by firms to slip to +19 in March 2018 as
uncertainties over economic growth, labor supply and geopolitical risks from
North Korea continue. Tankan results usually show companies holding a cautious
outlook about the future.
     The index among smaller manufacturers rose to +15 in December from +10 in
September, hitting the highest level since August 1991, when it was at +20. It
was the sixth straight quarterly rise.
     By contrast, the index for sentiment among major non-manufacturers showed
no improvement at +23 December, unchanged from September.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email:
--MNI BEIJING Bureau; +1 202-371-2121; email:

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