— See Separate Table For Details Of Individual Economist Forecasts

TOKYO (MNI) – Japan’s core consumer price index is expected to
decline 0.3% on year in February, a slightly larger decline that the
0.2% drop in January, according to the median forecast of analysts
surveyed by Market News International.

The Ministry of Internal Affairs and Communications will release
the CPI data at 0830 JST on Friday, March 25 (2330 GMT Thursday).

Economists said the year-on-year fall in core CPI widened in
February due mainly to the slower pace of increases in energy prices.

Regular gasoline prices rose 7.0% on year in February, decelerating
from +7.9% in January, according to the Oil Information Center.

But economists said the expected slight acceleration in price
deflation in February would be temporary, and that declines in core CPI
will shrink gradually as energy prices continue to rise from
year-earlier levels and the output gap — excess capacity vs. slack
demand — continues to narrow.

Japan’s output gap stood at -3.9% in the fourth quarter of 2010,
gradually improving from -9.2% marked in the first quarter of 2009 in
the middle of the global recession.

The BOJ is closely watching the output gap, which it believes has a
major impact on prices with a lag of about a year.

Looking ahead, many economists forecast core CPI will enter
positive territory in April, with a year-on-year gain of 0.2% to 0.6% in
the absence of any new price-depressing factors.

Government stimulus measures to provide free high school education
that began in April 2010 have been pushing down prices from year-earlier
levels for the 12 months up to March this year.

As the effect fades out beginning in April, it is forecast to push
up the year-on-year change in core CPI by around 0.5 percentage point.

But core CPI is expected to be hit by a fresh factor in August,
when the government will update the base year to 2010 from 2005 and
reviews the basket of goods and services used for calculating the main
consumer price measure.

Economists say the revamp in the data will push down the y/y change
in core CPI by 0.5-0.8 percentage point.

Meanwhile, central Tokyo core CPI for March, which will be released
together with the February national CPI, is expected to show a 0.3%
fall, compared with -0.4% in February and -0.2% in January.

skodama@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4838 **

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