— Adds Details, Economist, Official Comments Throughout
— Japan Feb Core CPI -0.3% Y/Y, 24th Drop In Row; Jan -0.2%
— Japan Feb Core CPI MNI Survey Median Forecast: -0.3% Y/Y
— Central Tokyo March Core CPI -0.3% Y/Y, 23rd Drop; Feb -0.4%
— Central Tokyo FY2010 CPI -0.9% Y/Y; FY2009 -1.6%
— Japan CPI Shows Feb Energy Costs +4.0% Y/Y Vs Jan +4.7%

TOKYO (MNI) – Japanese national core consumer price fell slightly
deeper into negative territory in February due to a temporary slowdown
in the pace of energy price markups, data released Friday by the
Ministry of Internal Affairs and Communications showed.

But economists stressed that the economy is still set to move out
of years of deflation later this year amid the uptrend in energy and
food costs.

In addition, economists warned of looming upside risks to Japan’s
prices in coming months as the March 11 earthquake and tsunami
have wreaked havoc on production facilities, distribution networks and
power supplies in northeastern Japan.

The nationwide core CPI (excluding perishables) fell 0.3% in
February from a year earlier, posting the 24th straight y/y drop, with
the pace of decline accelerating slightly from -0.2% in January.

The January reading was the smallest since April 2009, when the
core CPI dipped 0.1% y/y.

The February core CPI, which excludes fresh food but includes
energy, matched the median forecast of -0.3% by economists polled by
Market News International.

Overall energy costs in February rose 4.0% following a gain of 4.7%
in January.

Prices of refined petroleum products rose 7.8% in February, down
from 8.5% in January.

The y/y rise in gasoline prices was slower at +7.2% in February,
down from 8.2% in January, while the pace of increase in heating oil
slowed to +17.1% in February from +18.4% in January.

“The acceleration in consumer deflation in February was a blip,”
said Taro Saito, senior economist at NLI Research Institute, a unit of
Japan’s largest life insurer Nippon Mutual Life Insurance Co.

“Given a spike in energy and food costs of late, the CPI’s
year-on-year decline may narrow to around zero in March and post the
outright rise in April,” he added.

The average price of regular gasoline in Japan this week jumped
further to Y151.2 ($1.87) per liter, or $7.00 per gallon, from Y148.5
last week, remaining at the highest level in two years and five months,
data released by the Oil Information Center showed on Thursday.

Regular gasoline prices posted a fifth straight weekly gain and
remained at the highest level in over two years since the week that
started on Oct. 27, 2008, when the average price stood at Y151.3.

Globally food and energy costs are rising in light of drought in
Russia and Northern China, flooding in Australia as well as two major
earthquakes in New Zealand since September. Civil unrest has swept
through the Middle East, raising political uncertainties and boosting
crude oil prices.

Economists also pointed to the growing upward pressure on prices
from the killer earthquake in Japan that has sparked the country’s worst
radiation crisis at the damaged nuclear power plant in Fukushima
Prefecture about 200 kilometers northeast of Tokyo.

“The quake will slash redundant production capacities, while
boosting demand for fuel products as utility firms shift their focus to
thermal power plants, thereby posing upward risks to prices,” said Junko
Nishioka, chief economist at RBS Securities, the Japanese unit of Royal
Bank of Scotland Plc.

The government said on Wednesday that the massive damage inflicted
by the March 11 earthquake on Japan’s northeastern Pacific coast is
estimated at up to Y25 trillion ($309 billion), the largest-ever from a
disaster in the country’s post-war history.

The official estimate, which was the first released after the
violent quake and tsunami swept through fishing ports and farmlands, was
based on the assumption that 80% of existing buildings and factories in
Iwate, Miyagi and Fukushima prefectures in northern Japan were damaged.

The estimated damage would exceed the toll of around Y9.6 trillion
from the Great Hanshin Earthquake, which hit western Japanese port city
of Kobe on Jan. 17, 1995.

Tokyo Electric Power Co, the operator of the troubled Fukushima
Daiichi nuclear power station, will build thermal power generation
facilities using liquefied natural gas and resume idle thermal power
plants to avoid rolling blackouts in the months ahead, the Nikkei
reported on Friday.

TEPCO’s output capacity had plunged to 38.5 million kilowatts as of
Thursday since the temblor and tsunami knocked out its Fukushima Daiichi
(No. 1) and Daini (No. 2) nuclear power stations, according to the
business daily.

Once the new gas turbine facilities begin operations, TEPCO will
have a total output of nearly 50 million kilowatts, the Nikkei said.

“Without factoring into the impact of the quake and assuming that
fuel and food costs were to maintain the pre-quake levels, the annual
rate of increase in the core CPI may come closer to 1%,” NLI’s Saito.

Meantime, total national CPI was flat in February from a year
earlier for the third straight month. In October, the index was up 0.2%,
marking the first y/y rise since December 2008.

The February decline in CPI was led by markdowns in durable goods
such as consumer electronics as well as continued drops in high school
tuition costs after the government began providing subsidies last April.

School tuition costs fell 17.4% in February 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.

National CPI excluding food and energy, or the U.S. style core CPI,
fell 0.6% in February from the year before, posting the 26th consecutive
month of price falls following -0.6% in January.

Meanwhile, central Tokyo core CPI fell 0.3% year-on-year in March,
the 23rd straight y/y drop. The pace of decline slowed from -0.4% in
February due largely to higher prices of clothing and footwear as well
as increased tobacco prices.

The March Tokyo CPI data didn’t factor in the impact of the deadly
quake that hit wide areas of northeastern Japan on March 11 afternoon as
the government survey on price trends in the capital had been all but
finished by then, conducted from March 9-11, a ministry official said.

The official also told reporters that it would be difficult for
the government to accurately grasp consumer price changes in its
national survey for March due to a lack of data from the quake-hit
areas in Miyagi, Iwate and Fukushima prefectures.

Tokyo-area energy costs rose 2.0% in March following a 1.4% rise
y/y in February.

In central Tokyo, gasoline and heating oil prices continued to rise
from year-earlier levels. Gasoline rose 12.7% in March, up sharply from
+6.1% in February, while kerosene was up 16.6% this month versus 11.3%
in February.

Month-on-month, core central Tokyo CPI rose 0.4% in March following
a 0.1% drop in February, marking the first rise since +0.4% m/m
in October 2010.

Tokyo CPI excluding food and energy fell 0.3% in March from a year
earlier following -0.3% in February It stayed in negative territory for
the 27th straight month.

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

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

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