— Central Tokyo Sep Core CPI -1.0% Y/Y Vs Aug -1.1%, 17th Drop In Row
— Central Tokyo Core CPI Drop Smallest Since -0.7% in May 2009
— Japan CPI Remains Depressed By Lower Prices for Tuition, Electronics
— Japan CPI Shows Aug Energy Costs +4.3% Y/Y Vs July +3.7%

TOKYO (MNI) – Japan’s core consumer prices fell 1.0% in August from
a year earlier, the 18th straight y/y drop, as retail discounts and
subsidies for high school education continued to offset higher energy
costs, the Ministry of Internal Affairs and Communications said Friday.

The pace of decline in the core CPI — excluding fresh food but
including energy — decelerated slightly from -1.1% in July and matched
June’s -1.0% because the year-on-year rise in energy prices expanded to
+4.3% in August from +3.7% in July, raising the sector’s positive
contribution to the CPI.

The August result matched analysts’ median forecast.

Continued sharp discounts on durable goods — heaters/air
conditioners, flat-screen TVs and personal computers — contributed to
the price drop, overwhelming a year-over-year rise in gasoline and
heating oil costs.

Core CPI has shown widespread declines in prices of goods and
services as retailers cut prices to lure customers and technological
advancement makes higher quality products available at the same or lower
prices.

High school tuition costs fell 17.4% in August from a year before,
contributing -0.49 percentage point to the total CPI year-on-year drop
of -0.9% (vs. -0.9% in July), exerting the same rate of downward
pressure as in the previous months.

Utility charges showed a year-on-year rise in August, pushed up by
the first y/y rise in electricity charges in 16 months and a further
gain in city gas bills. This led to a higher 4.3% rise in overall energy
costs in August, up from a 3.7% gain in July.

Electricity costs were up 1.3% y/y in August vs. -0.3% in July,
while city gas was up 2.8% vs. +0.6% the previous month.

The pace of the year-on-year rise in prices of refined petroleum
products continued to decelerate to +7.0% August from +7.8% in July and
+12.3% in June.

The y/y rise in gasoline prices was slower at +6.4% in August,
compared with +7.4% in July, while the pace of increase in heating oil
also decelerated to +17.4% in August from +18.2% in the previous month.

The rate of core CPI price drops had slowed to -1.3% by December
last year from the record -2.4% pace in August 2009 but deflation did
not ease much through April 2010, when the core reading actually slumped
to -1.5%, as the government began providing subsidies for high school
tuition as part of its economic stimulus measures.

The Bank of Japan has said high school tuition cuts, whose effect
on CPI will last for 12 months from April, should be excluded when
gauging the consumer price trend.

The BOJ has also said that the year-on-year rate of decline in the
core CPI is expected to slow as the negative output gap — overcapacity
vs. slack demand — continues shrinking gradually. The bank’s board
expects the core CPI to rise 0.1% in fiscal 2011 after two years of
declines.

The government expects the CPI to start rising on a year-on-year
basis in fiscal 2011 and seeks to achieve an average 1% rise in prices
through fiscal 2020. Unlike some other countries, Japan’s government and
central bank do not set a common inflation target.

On a month-over-month basis, the core national CPI rose 0.1% in
August, the first m/m gain in three months after falling 0.3% in July,
as higher overseas holiday tour costs offset continued markdowns in
summer clothing.

Meanwhile, core central Tokyo CPI fell 1.0% year-on-year in
September, the 17th straight y/y drop, but the rate of decrease
decelerated from -1.1% in August, as utility charges continued to gain,
mitigating the impact of a much slower pace of y/y increase in gasoline
prices.

The 1.0% drop in August was the smallest y/y decrease since -0.7%
marked in May 2009.

In the central Tokyo area, the pace of price drops has fluctuated
since the record drop of 2.2% hit in October 2009 but the year-over-year
decline now seems to be shrinking.

Sharp drops in high school tuition continued to lead the decrease
in September, while sharper drops in air fares also exerted downward
pressure. But a jump in utility costs provided a positive contribution
to the core reading.

Tokyo-area gasoline and heating oil prices continued to rise from
year-earlier levels, although gasoline prices showed only a 0.7% gain
y/y in September vs. +4.0% in August.

The overall energy cost in the area rose 4.8% y/y in September, up
from +3.8% in August, due to higher utility charges.

Month-on-month, core central Tokyo CPI rose 0.1% in September after
rising 0.2% in August, posting the second straight m/m rise.

CPI figures date to 1970 under the current 2005 base year.

Other details from the latest data:

National CPI excluding food and energy, or the U.S. style core CPI
(y/y): August -1.5% vs. July -1.5%, the 20th straight on-year drop.

Tokyo CPI excluding food and energy (y/y): September -1.3% vs.
August -1.4%, in negative territory for the 21st straight month.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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