— Japan Core CPI Posts 15th Straight Y/Y Drop
— Central Tokyo June Core CPI -1.3% Y/Y Vs May -1.5%
— Drop In High School Tuition Prompts May Japan CPI Fall
— Japan Overall Energy Costs Post Higher Y/Y Rise In May Than April

TOKYO (MNI) – Japan’s core consumer inflation rate rose to -1.2% in
May, the 15th straight year-on-year drop, with retail discounts
overwhelming higher energy costs, data from the Ministry of Internal
Affairs and Communications released on Friday showed.

The pace of decline decelerated from -1.5% in April, as widely
expected, but a drop in high school tuition after the government began
providing subsidies at the start of the new fiscal year as part of its
economic stimulus program continued to hold down Japan’s CPI.

In addition, 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 May from a year before,
contributing -0.49 percentage point to the year-on-year drop of -0.9% in
the overall CPI (core plus fresh food).

Utility charges still showed a year-on-year drop but overall
energy costs posted a 4.8% rise in May, up from a 0.6% gain in April.

The pace of the year-on-year rise in prices of refined petroleum
products accelerated to +15.7% in May from +13.2% in April.

The y/y rise in gasoline prices was faster at +19.0% in May,
compared with +17.0% in April, while the pace of increase in heating oil
also accelerated to +25.6% in May from +19.2% in the previous month.

The decline in utility charges was lower in May, with electricity
down 3.8% y/y vs. -9.4% in April and city gas falling 6.4% vs. -10.6% in
the previous month.

The rate of deflation in March was below the record -2.4% pace in
August last year. However, after declining for four months in a row to
-1.3% last December, the pace of price drops changed little from January
through March, causing some concern that deflation may more deeply
rooted in Japan than previously thought.

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 CPI
(excluding fresh food) is expected to slow as the aggregate supply and
demand balance improves gradually.

The government has said that it 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.

On a month-over-month basis, the core national CPI rose 0.1% in May
after falling 0.3% in April, posting the first on-month rise in two
months.

Even though energy costs have recovered from year-earlier levels,
core CPI, which excludes fresh food but includes gasoline and heating
oil costs, has shown widespread declines in prices of goods and services
as retailers cut prices to lure customers.

Meanwhile, core central Tokyo CPI fell 1.3% year-on-year in June
after falling revised 1.5% in May, posting the 14th 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 and the overall energy cost rose 0.7% in June,
reversing from a 1.0% fall in May.

Month-on-month, core central Tokyo CPI was down 0.2% in June after
rising 0.1% in May.

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): May -1.6% vs. Apr -1.6%, the 17th straight on-year drop.

Tokyo CPI excluding food and energy (y/y): June -1.4% vs. May
-1.4%, in negative territory for the 18th straight month.

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

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