— Central Tokyo July Core CPI -1.3% Y/Y Vs June -1.3%
— Japan CPI Remains Depressed By Lower Tuition, Electronics
— Japan CPI Shows June Energy Costs +4.5% Y/Y Vs May +4.8%

TOKYO (MNI) – Japan’s core consumer prices fell 1.0% from a year
earlier in June, the 16th straight y/y drop, as retail discounts and
subsides for high school education continued to offset higher energy
costs, the Ministry of Internal Affairs and Communications said Friday.

But the pace of decline in the core CPI — excluding fresh food but
including energy — decelerated from -1.2% in May and -1.5% in April,
slightly beating the consensus forecast of an improvement to -1.1%.

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.

High school tuition fell 17.4% in June from a year before,
contributing -0.49 percentage point to the year-on-year drop of -0.7%
(vs. -0.9% in May) in the overall CPI, exerting the same rate of
downward pressure as in the previous month.

Utility charges still showed a year-on-year drop (although at a
slower space) while overall energy costs posted a 4.5% rise in June,
down from a 4.8% gain in May.

The pace of the year-on-year rise in prices of refined petroleum
products decelerated to +12.3% in June from +15.7% in May.

The y/y rise in gasoline prices was now slower at +13.6% in June,
compared with +19.0% in May, while the pace of increase in heating oil
also decelerated to +24.1% in June from +25.6% in the previous month.

The decline in utility charges was lower in June, with electricity
down 2.0% y/y vs. -3.8% in May and city gas falling 4.1% vs. -6.4% in
the previous month.

The rate of 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, when the core reading actually slumped to -1.5% as
the government began providing subsidies for high school tuitions as
part of stimulus measures.

The Bank of Japan has said the damping effects of high school
tuition cuts on year-on-year CPI changes, which will last for 12 months
from April, should be excluded when gauging the consumer price trend.

The BOJ 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 it also will seek 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 unchanged in
June after rising 0.1% in May.

Even though energy costs have recovered from year-earlier levels,
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.

Meanwhile, core central Tokyo CPI fell 1.3% year-on-year in July
after falling at the same rate in June, posting the 15th straight y/y
drop.

The pace of decline has fluctuated since the record drop of 2.2%
hit in October 2009.

As expected, sharp drops in high school tuition continued to lead
the decrease.

Tokyo gasoline and heating oil prices continued to rise from
year-earlier levels, although at a slower pace than in the previous
month. The overall energy cost in the area rose 2.0% in July, up from
+0.7% in June.

Month-on-month, core central Tokyo CPI fell 0.3% in July after
falling 0.2% in June.

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): June -1.5% vs. May -1.6%, the 18th straight on-year drop.

Tokyo CPI excluding food and energy (y/y): July -1.4% vs. June
-1.4%, in negative territory for the 19th straight month.

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

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