— Adds Details From 26th Paragraph
— Japan Core CPI Posts 12th Straight Y/Y Drop
— Central Tokyo Mar Core CPI -1.8% Y/Y Vs Feb -1.8%
— Electronics Continue To Lead Japan CPI Declines
— Gasoline, Heating Oil Up But Overall Energy Costs Still Down

TOKYO (MNI) – Japan’s core consumer inflation rate fell 1.2% in
February, posting the 12th straight year-on-year drop, after falling
1.3% in January, official data released on Friday showed.

But continued sharp discounts on durable goods — heaters/air
conditioners, flat-screen TVs and personal computers — led the price
drop, overwhelming a year-over-year rise in gasoline and heating oil
costs (lower utilities still kept overall energy costs down).

The 1.2% drop in the core CPI was the smallest fall since -1.1%
marked in May 2009, the data released by the Ministry of Internal
Affairs and Communications showed.

The pace of the year-on-year price drop had slowed for four months
in a row through December 2009, dropping to -1.3% that month from -1.7%
in November, -2.2% in October, -2.3% in September and the record drop of
-2.4% in August.

But in January this year the pace of shrinkage in y/y drops marked
time at -1.3%, causing some concern that deflation may more deep rooted
in Japan than previously thought.

In February the decline in overall energy costs decelerated further
to -0.3% y/y from -1.0% in January, -2.4% in December and -7.9% in

This was due to a slightly faster y/y rise in the prices of refined
petroleum products in February of +11.5%, up from +10.9% in January, as
well as a smaller drop in utility prices (electricity -9.4% y/y vs.
-9.7% in the previous month and city gas -11.2% vs. -11.9%).

The pace of y/y gains in gasoline prices actually slowed in
February but still posted a double-digit percentage rise of +17.8%
following +19.1% y/y in January and +8.3% in December.

Heating oil also contributed to supporting consumer prices, rising
8.2% y/y in February vs. +3.0% in January and -8.2% in December.

On a month-over-month basis, February core national CPI was
unchanged after falling for the previous four months in a row. It
followed a 0.6% drop in January, which was the largest m/m decline since
-0.6% marked in January 2009.

On the month, higher heating oil costs offset lower prices for
women’s winter clothing.

The core CPI, which excludes fresh food but includes gasoline and
heating oil costs, has shown wide-spread declines in prices of goods and
services as retailers cut prices to lure customers and despite a
recovery in some energy costs from year-earlier levels.

Retail gasoline prices have been fluctuating in tight ranges in
recent weeks while their longer-term uptrend since mid-January 2009
remains intact.

In the March 22 week, the average price of regular gasoline in
Japan rose to Y131.0 ($1.42) per liter, or $5.40 per gallon, from Y130.4
the previous week, posting the third weekly rise in a row. It was much
higher than Y111.5 marked a year ago.

Between October 2007 and December 2008, the core national CPI
posted year-over-year gains ranging from +0.1% to +2.4%, followed by two
months of unchanged readings.

In July and August 2008, the core index hit +2.4%, the fastest pace
of inflation since October 1997, but started to slide from there.
Excluding the effects of the April 1997 sales tax hike, the July-August
rate was the highest in about 16 years, since +2.5% in June 1992.

As the effects of record high gasoline prices marked in the summer
of 2008 fell out of the calculation, the core national CPI plunged last
year, hitting a record year-on-year drop of -2.4% in August 2009.

Meanwhile, core central Tokyo CPI fell 1.8% year-on-year in March
after dropping at the same rate in February, having slowed from -2.0% in
January and the record drop of 2.2% hit in October 2009. It was the 11th
straight y/y drop.

Lower costs of overseas holiday tours and durable goods continued
to lead the decline in the area. Rents and women’s clothing also
contributed the drop in the latest month.

Gasoline prices continued to rise from year-earlier levels since
December (+16.4% y/y in March vs. +15.3% in February) and heating oil
was also up after turning positive in February (+7.7% in March vs. +3.4%
in February), but overall energy costs were still down by 7.6%, although
the pace of decline slowed from -8.5% in the previous month.

Month-on-month, core central Tokyo CPI rose 0.3% in March, up for
the second straight month, after +0.1% in February, which had been the
first m/m gain in 11 months.

Higher prices of women’s spring and summer clothing as well as
markups in overseas holiday tours and airfares led the increase.

In September 2008, the central Tokyo core CPI hit +1.7%, matching
the 1.7% gain seen in March 1998. Excluding the effects of the 1997
sales tax hike, it was the highest in nearly 16 years, since the 1.9%
rise in December 1992.

But as seen in the national CPI, energy costs showed year-on-year
drops last year compared with record highs in 2008, sending the Tokyo
core CPI to a record drop of -2.2% in October 2009.

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

In fiscal 2009 ending March 31, 2010, the core central Tokyo CPI
fell an average 1.6%, posting the first drop in four years after +1.1%
in fiscal 2008, +0.1% in fiscal 2007 and being unchanged in fiscal 2006.

Previously the core Tokyo CPI showed seven straight years of drops
from fiscal 1999 through fiscal 2005.

Total CPI in the area fell an average 1.8% in fiscal 2009 vs. +1.0%
in fiscal 2008 (the first drop in four years) while the Tokyo CPI
excluding food and energy dipped 1.2% in fiscal 2009 vs. +0.1% in the
previous year (the first fall in two years).

Other details from the latest data:

Total national CPI (y/y): Feb -1.1% vs. Jan -1.3% and a record drop
of -2.5% in October 2009, posting the 13th straight month of y/y drops
after being unchanged in January 2009.

Between October 2007 and December 2008, the index showed 15
straight months of on-year gains, ranging from +0.3% to +2.3%.

In February, the decline was led by lower costs of fresh fish,
electricity charges and durable goods, but the rate of y/y decline was
slowed by gains in refined petroleum products (+11.9% y/y vs. +10.9%).

Total national CPI (m/m): Feb -0.1% vs. Jan -0.2%, posting the
fifth straight m/m drop. Lower prices of fresh fish and women’s winter
clothing led the decline while heating oil prices rose.

Total central Tokyo CPI (y/y): Mar -1.8% vs. % vs. Feb -1.8% and a
record drop of -2.4% in October 2009, showing the 12th straight month of
y/y drops after being in positive territory for 18 months in a row
through March 2009 (ranging from +0.1% to +1.6%).

The decline was led by continued on-year drops in overseas holiday
tours, air conditioners/heaters, clothing, utilities and rents.

By contrast, the average price of retail gasoline in central Tokyo
rose further by 16.4% y/y in March after +15.3% in February. It turned
positive in December 2009.

Total central Tokyo CPI (m/m): Mar +0.3% vs. Feb unchanged
following five straight months of drops through January this year. In
March, women’s spring and summer clothing, overseas holiday tours and
airfares led the increase.

National CPI excluding food and energy, or the U.S. style core CPI
(y/y): Feb -1.1% vs. Jan -1.2%, the 14th straight on-year drop.

Tokyo CPI excluding food and energy (y/y): Mar -1.2% vs. Feb -1.3%,
in negative territory for the 15th straight month.

** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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