REPEAT: MNI INSIGHT: BOJ Sees Firmer Global Growth, Weak CPI

Repeats Story Initially Transmitted at 06:34 GMT Jan 18/01:34 EST Jan 18

--Longer-term Inflation Expectations Pick-Up Slower Than Expected

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan officials now regard global growth as firmer

than three months ago when they last updated their medium-term projections, but

going forward it is still uncertain whether it will lead to higher domestic

inflation, MNI understands.

     At its two-day policy meeting ending on Tuesday, the BOJ board is likely to

maintain its view that "upside and downside risks to economic activity are

generally balanced," as seen in the bank's quarterly Outlook Report issued in

October.

     --SOLID GLOBAL DEMAND

     BOJ officials are convinced that exports will continue supporting the

current modest economic recovery for the time being while domestic demand

remains solid.

     They are focused on how exports will increase demand for capital investment

and boost profits, which would enable exporters to increase wages, helping put

upward pressure on domestic prices.

     This mechanism, along with continued wage hikes, which officials hope to be

higher this year due to labor shortages, should strengthen the momentum toward

achieving the bank's 2% inflation target.

     But BOJ economists think that it will take some time before retail price

hikes affect economic indicators and longer-term inflation expectations gain

upward momentum.

     The real export index calculated by the BOJ showed a 5.1% month-on-month

rise in November, for the second straight rise after a 2.6% gain in October.

     The October-November average of the index grew 2.4% over the July-September

quarter, when it rose 1.9% from April-June, indicating Japanese shipments to the

rest of the world will continue growing in the whole of the final quarter of

2017.

     Solid global demand will continue to support Japan's exports, which in turn

would increase industrial production and capital investment, BOJ economists

think.

     Last week, the World Bank upgraded its global economic growth forecast for

2018 to 3.1% from the 2.9% seen in June and revised up its forecast for Japanese

growth to 1.3% from 1.0%.

     --CPI DOWNSIDE RISK

     The board is also expected to maintain its view that "risks to prices are

skewed to the downside" as the pickup in inflation has been slow, compared with

the recent solid to strong economic expansion. Some firms are raising retail

prices to pass along higher costs, while others are offering discounts to lure

customers.

     Longer-term inflation expectations among firms and households haven't

improved as much as BOJ economists expected earlier. The public's price outlook

has stopped falling but has not shown a clear uptrend.

     --HIGHER ENERGY PRICE IMPACT

     BOJ economists are analyzing how the recent rise in international energy

and commodity prices will push up the total consumer price index in Japan and

whether a higher year-on-year increase in the CPI will raise inflation

expectations, going forward.

     In theory, higher crude oil prices will increase pressure on firms to

transfer higher costs on to prices, but unless wages are increased steadily,

many firms will remain cautious about raising retail prices for fear of

dampening consumer spending.

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