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Bank of Japan inflation target recedes as consumers resist price rises

Japan's core consumer price growth slowed in April for a second straight month, showing little of the inflationary momentum needed to reach the central bank's elusive 2 per cent target.

[TOKYO] Japan's core consumer price growth slowed in April for a second straight month, showing little of the inflationary momentum needed to reach the central bank's elusive 2 per cent target.

The weakness in April inflation is particularly unwelcome for the Bank of Japan, which had hoped companies would rush to hike prices at the start of a new business year.

The slowdown, which came in the wake of first-quarter data showing the economy may have reached its peak, could discourage BOJ policymakers from signalling their intention to end its ultra-easy monetary policy, analysts say.

"The broad-based moderation in price pressures in April underlines that the Bank of Japan won't be able to tighten monetary policy anytime soon," said Marcel Thieliant, senior Japan economist at Capital Economics.

"We expect GDP growth to slow this year which suggests that capacity shortages won't intensify any further." The core consumer price index, which includes oil products but excludes volatile fresh food costs, rose 0.7 per cent in April from a year earlier, slightly less than a median market forecast for a 0.8 per cent rise.

It followed a 0.9 per cent gain in March, marking the second straight month of slowdown, despite recent gains in oil prices that pushed up electricity and gasoline bills.

The pace of increase in the core-core CPI, an index closely watched by the BOJ that strips away the impact of fresh food and energy costs, slowed to 0.4 per cent from 0.5 per cent in March.

Processed food prices rose 1.1 per cent in April from a year earlier, the same rate of increase as March, a sign few firms took the start of a new business year as an opportunity to pass rising costs on to consumers.

The ratio of goods that saw prices rise stood at 53.9 per cent in April, roughly unchanged from March.


The pressure to keep prices down is particularly strong for mass-market retailers with acutely cost-conscious customers.

Fast food operator Yoshinoya Holdings Co has said it has no plans to raise the price of its famed beef bowl dish this year despite rising labour costs, having suffered a decline in sales after a price hike in 2014.

Torikizoku continues to see customer numbers fall since it raised the price of its grilled chicken skewers last October for the first time in nearly 30 years.

"The economy isn't necessarily doing that well," said Soichi Okazaki, president of retail giant Aeon Co Ltd.

While recent rises in oil costs may underpin price growth, analysts expect inflation to fall short of the BOJ's goal in coming years given slow wage growth and weak consumption.

"Companies remain cautious of raising prices," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

"Price rises for non-energy goods will likely remain slow, so we can't expect core CPI to accelerate much," he said, adding that core consumer inflation will likely hover below 1 per cent for the time being.

Japan's economy contracted more than expected at the start of this year, suggesting growth has peaked after the best run of expansion in decades.

While analysts expect growth to rebound in the current quarter, any sign of the economy hitting a plateau could further push back market expectations of an exit from easy monetary policy.

The BOJ last month dropped a timeframe for hitting its price goal and Governor Haruhiko Kuroda has conceded that pushing up inflation expectations would take time.

Almost half the economists polled by Reuters this month do not expect the BOJ to change its ultra-easy policy until 2020 or later, given sluggish inflation.


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