— Japan Dec Core CPI -0.4% Y/Y, 22nd Drop In Row; Nov -0.5%
— Japan Dec Total CPI Unchanged Y/Y Vs Nov +0.1%
— Central Tokyo Jan Core CPI -0.2% Y/Y, 21st Drop; Dec -0.4%
— Japan CPI Shows Dec Energy Costs +4.0% Y/Y Vs Nov +3.9%
— Japan 2010 Average Core CPI -1.0%, 2nd Drop; -1.3% in 2009

TOKYO (MNI) – Japan’s national core consumer prices fell 0.4% in
December from a year earlier, posting the 22nd straight y/y drop and
indicating that the economy is still mired in mild deflation, data
released Friday by the Ministry of Internal Affairs and Communications
showed.

But the pace of decline in the core CPI — excluding fresh food but
including energy — slowed from -0.5% in November, due largely to the
tobacco tax hike that took effect on Oct. 1, combined with rising
gasoline and heating oil prices.

The December core CPI came in slightly better than the -0.5% median
forecast in an MNI survey of economists.

Consumer price drops measured in the core reading also decelerated
to -1.0% on average in 2010 from -1.3% in 2009. It was the second
straight year of decline after +1.5% in 2008 and being flat in 2007.

Total national CPI, meantime, was flat in December from a year
earlier after rising 0.1% in November. In October, the index was up
0.2%, marking the first y/y rise since December 2008.

The tax hike raised cigarette prices by 38.6% on year at the
national level in December, pushing up total CPI by 0.27 percentage
point.

Continued sharp discounts on durable goods — refrigerators,
flat-screen TVs and personal computers — contributed to the core price
drop, overwhelming year-over-year gains in costs for tobacco as well as
gasoline and heating oil.

Core CPI has shown widespread declines in prices of goods and
services as retailers cut prices to lure cautious customers. In
addition, technological advances has made higher quality products
available at the same or lower prices.

High school tuition costs fell 17.4% in December from a year
before, contributing -0.49 percentage point to the total CPI. The
government began subsidizing high school education in April 2010.

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

Meanwhile, overall energy costs in December rose 4.0% following a
gain of 3.9% in November.

Electricity costs were up 1.1% y/y in December vs. +2.0% in
November while city gas was up 5.1% vs. +6.1% the previous month.

Prices of refined petroleum products rose 5.8% in December
following a +5.0% in November, but slower than +12.3% seen in June 2010.

The y/y rise in gasoline prices was faster at +5.5% in December,
compared with +4.3% in November, while the pace of increase in heating
oil accelerated to +13.1% in December from +12.4% in the previous month.

Regular gasoline prices rose 4.7% on year in December, accelerating
from +3.9% in November, according to the Oil Information Center.

And the uptrend continues in January. The average price of regular
gasoline in Japan rose to Y137.8 ($1.68) per liter, or $6.38 per gallon,
this week from Y137.1 last week, posting the eighth straight weekly
rise, the Oil Information Center said on Wednesday.

The average price this week was up by 7.2% from Y128.5 per liter
seen a year earlier.

The BOJ has said that the year-on-year rate of decline in core CPI
is expected to slow as the negative output gap — excess capacity vs.
slack demand — continues to shrink gradually. The bank’s board expects
the core CPI to rise 0.3% on average in fiscal 2011 after two years of
declines.

The government also 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 was flat in
December after a fall of 0.1% in November.

Meanwhile, central Tokyo core CPI fell 0.2% year-on-year in
January, the 21st straight y/y drop, but it was a slight improvement
from -0.4% in December.

The December decline was the smallest since the unchanged reading
in April 2009. It was the smallest drop during the current downtrend
that began with -0.7% in May 2009 and bottomed out at -2.2% in October
2009.

Tokyo-area gasoline and heating oil prices continued to rise from
year-earlier levels. Gasoline rose 8.4% y/y in January vs. +4.2% in
December while kerosene was up 13.1% in January vs. +10.1% in the
previous month.

Overall energy costs in the area rose 2.8% y/y in January, down
from +3.2% in December.

Month-on-month, core central Tokyo CPI slumped 0.6% in January
after dipping 0.1% in December, on markdowns in women’s winter clothing
and overseas holiday hours.

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): January -0.7% vs November -0.9%, the 24th straight on-year drop.

Tokyo CPI excluding food and energy (y/y): January -0.3% vs
December -0.5%, in negative territory for the 25th straight month.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4835 **

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