REPEAT: MNI INTERVIEW: Ex-BOJ Offl: CPI May Prompt Dec Shift

--Ex-BOJ Hayakawa: Core-Core CPI Near 1% Y/Y Crucial for Policy Shift

--Ex-BOJ Hayakawa: FY18 Wage, Price Hikes Key To Firmer CPI Outlook

--Ex-BOJ Hayakawa: US-Japan Rate Gap Unlikely To Weaken Yen Further

By Hiroshi Inoue

     TOKYO (MNI) - The recent upward shift in Japanese consumer prices, if

sustained, is likely to prompt the Bank of Japan to consider raising its 0%

target for the 10-year bond yield, possibly around the end of December, a former

senior BOJ official told MNI.

     "Prices in Japan have shifted slightly upward since late last year," Hideo

Hayakawa, a former BOJ chief economist and currently senior executive fellow at

Fujitsu Research Institute, told MNI in a recent interview.

     The core-core CPI, which excludes fresh food and energy, rose 0.3% on year

in December, after rising 0.3% in November and 0.2% in October.

     It is a key measure of whether prices are rising on the strength of the

economy without relying on higher fuel prices and the weak yen that pushes up

import costs.

     "I cannot judge whether the recent data have shown the strength of the

underlying price trend before examining the developments in the next few months,

including base wage hikes and corporate price setting stances," Hayakawa said.

     Hayakawa expects average wage hikes for employees at major firms to be 2.3%

to 2.4% (including base wage rises of 0.5% to 0.6%) for fiscal 2018 following

+2.11% in fiscal 2017, +2.14 in fiscal 2016 and +2.38 in fiscal 2015.

     --1% CORE-CORE CPI

     He said that should help push up the year-on-year rise in the core-core CPI

close to 1% "around yearend" and if the BOJ is confident about a further rise,

it will "consider" raising the target for the 10-year bond yield from the

current "around zero percent."

     The core CPI, which excludes only fresh food, rose 0.9% on year in

December, and the nine-member BOJ board has forecast the index will rise 1.4% in

fiscal 2018.

     The gap in the pace of increase between the two price measures is expected

to narrow as the upward pressure from past energy price gains fades while labor

shortages are forcing some firms to raise service prices amid sustained economic

growth.

     "The moderate economic expansion in Japan led by overseas demand will

continue unless the global economy collapses," Hayakawa said.

     --WEAKER YEN UNLIKELY

     The widening interest rate differential between Japan and the U.S. has kept

the yen relatively weak, supporting the CPI increase, but Hayakawa predicted,

"The yen will not depreciate because solid Japanese exports are pushing up

Japan's current account surplus."

     Japan's current account surplus hit a 10-year high of Y21.87 trillion in

2017.

     Hayakawa was one of the six executive directors at the BOJ supporting the

governor from March 2009 to March 2013 after serving as the chief economist for

the central bank for about six years to 2007.

     He said the BOJ is unlikely to make major changes to the current easing

program even if it reviews the yield curve control framework under the incoming

new leadership.

     That is because the BOJ already shifted its focus to interest rates from

asset purchase amounts in September 2016, when it conducted a thorough review of

the effects and side-effects of large-scale easing, he explained.

     Governor Haruhiko Kuroda's five-year term ends on April 8 and the five-year

terms of his two deputies, Kikuo Iwata and Hiroshi Nakaso, end on March 19. The

government will reappoint Kuroda to another five-year term with the same mandate

of reflating the economy, pending Diet approval.

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