Japan January inflation seen easing, factory output up; BOJ sits tight

Fri Feb 20, 2015 2:26am EST
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By Kaori Kaneko

TOKYO (Reuters) - Japan's core inflation is seen slowing for a sixth month in January while factory output is expected to rise, underlining the policy challenge facing the Bank of Japan as it strives to speed up economic growth and achieve its 2 percent price target.

Stripping out the effects of a sale tax hike, the nation's core consumer price index (CPI) - excluding volatile fresh food but includes oil products - is forecast to have increased 0.3 percent year-on-year last month, a Reuters poll showed.

Hit by tumbling oil prices, that inflation number is not even quarter of the way toward meeting the BOJ's goal.

"Core CPI has been on the decline and there is a high possibility sharp falls in oil prices further push down consumer inflation toward the middle of this year," said Naoki Iizuka, economist at Citigroup Global Markets Japan.

On the bright side, factory output is expected to jump in January, up for a second straight month, and analysts are predicting a production uptick for a wide range of industries thanks to a recovery in exports.

The Bank of Japan is counting on exports to help offset the still-weak private consumption, and for weak oil prices to spur companies to spend more, helping the economy gather speed after last April's sales tax hike tipped it into recession.

At this week's policy review, BOJ Governor Haruhiko Kuroda said he saw no immediate need to ease policy again, stressing that temporary pressure from slumping oil prices won't derail steady progress toward reaching the central bank's 2 percent target.

Core CPI, including the effects of the tax-hike, was forecast at an annual 2.3 percent in January, down from a 2.5 percent rise in December, according to the poll of 22 economists.   Continued...

Shoppers look at packs of sugars at a luxury food store in Tokyo September 25, 2014.  REUTERS/Yuya Shino