Japan March inflation seen edging up, BOJ forecasts under pressure

By Reuters

Apr 24, 2015 05:52 AM EDT

Japan's consumer inflation was expected to edge up slightly in March as oil prices stabilized and consumer goods prices stayed steady, calling the Bank of Japan's bullish forecasts into question.

Key economic data next week include factory output and consumer spending-related data, which was expected to show a fall in March, suggesting the economic recovery from the setback of a sales tax hike last April is still feeble.

"Prices of gasoline and electricity will likely fall ahead as there is a time lag. So core consumer inflation is expected to decline below zero around May or June," said Taro Saito, director of economic research at NLI Research Institute.

Stripping out the sales tax hike, the core consumer price index (CPI) - excluding volatile fresh food but including oil products - was seen to rise an annual 0.1 percent in March, a Reuters poll of 22 analysts showed.

Core consumer inflation ground to a halt in February, the first time it has stopped rising in nearly two years.

Including the effects of the tax hike, core CPI is forecast to have risen an annual 2.1 percent, up from a 2.0 percent rise in February, the poll showed.

The Bank of Japan is expected to hold off on expanding monetary stimulus at its policy meeting on April 30 even though the bank is likely to slightly reduce its inflation forecast for this fiscal year, sources told Reuters. Analysts polled by Reuters saw a chance it could ease again at its October 30. meeting.


Industrial production is expected to have fallen 2.3 percent in March from the previous month, down for a second time after a 3.1 percent decline in February.

Analysts believe the pullback in factory output continued in March after solid rises in January and is basically on a recovery trend although its pace is slow.

"There was an inventory adjustment among firms and the overall factory output likely fell (in March) but January-March production is expected to rise," said an analyst at Mizuho Research Institute in the survey.

Household spending and retail sales were expected to fall sharply in March on an annual basis due to strong gains in March last year ahead of the sales tax hike.

The poll found household spending was expected to fall an annual 12.1 percent in March, down for a 12th straight month. Retail sales are seen to have fallen an annual 7.3 percent, down for a three months in a row.

The unemployment rate stood at 3.5 percent in March, unchanged from February. The job availability ratio was probably steady at 1.15, staying at the highest level seen in March since 1992.

The internal affairs ministry will release CPI data at 8:30 a.m. on May 1 (7.30 p.m. ET April 30), along with job-related data and household spending.

The trade ministry will publish retail sales figures at 8:50 a.m. on April 28 and production data on April 30.

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