REPEAT: MNI POLICY: BOJ Cautious on Inflation, June CPI Slow

Repeats Story Initially Transmitted at 05:34 GMT Jul 20/01:34 EST Jul 20

     TOKYO (MNI) - Slow consumer price gains seen in Friday's data, due largely

to deeper discounts on mobile communications fees, confirmed that Bank of Japan

policymakers must continue monetary easing persistently to achieve the 2%

inflation target.

     The slightly faster rise in the core consumer price index in July came as

no surprise to BOJ officials, who had expected the year-on-year increase in the

index to have accelerated after the Tokyo core CPI, a leading indicator, rose

0.7% in June following +0.5% in May.

     The national average core CPI (excluding fresh food) rose 0.8% on year in

June for the 18th straight year-on-year rise, with the pace of increase

accelerating from +0.7% in May.

     But BOJ officials remain vigilant against the underlying trend of inflation

rate as the faster core CPI was due mainly to higher prices for volatile items,

such as hotels and overseas holiday tours, and the downward pressure from lower

mobile data transmission fees continues.

     Looking ahead, BOJ officials have the view that inflation is expected to

rise gradually on the back of continued pressure on firms to raise prices amid

rising energy and labor costs and the impact of the recent yen depreciation,

which push up import costs for durable goods.

     But at the same time, they don't expect the pace of inflation to accelerate

sharply as companies have been absorbing higher costs through various measures,

such as increasing labor-saving capital investment.

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