UPDATE 1-Japan annual wholesale price fall slows on rising oil

(For more stories on the Japanese economy click [ID:nECONJP])

* Wholesale prices fall 1.3 pct year/year in March

* BOJ may consider raising fiscal 2011 CPI outlook – sources

* BOJ likely to maintain ultra-easy monetary policy
(Adds analyst comment, details)

TOKYO, April 13 (BestGrowthStock) – The slide in Japanese wholesale
prices on an annual basis slowed in March for the seventh
straight month due to rising energy costs, suggesting the country
may push up out of deflation earlier than previously expected.

But sluggish private consumption means companies may not be
able to transfer their rising costs on to households as much as
they want to, boding ill for the economy, which is heavily
reliant on corporate activity, analysts say.

That means the Bank of Japan is likely to maintain its
ultra-easy monetary policy for the forseeable future, they say.

“Both wholesale and consumer prices are likely to stay on an
upward bias in coming months,” said Junko Nishioka, chief Japan
economist at RBS Securities.

“But this is unlikely to lead to a change in the Bank of
Japan’s loose monetary policy as the BOJ focuses on the price
trend rather than short-term moves.”

Wholesale prices, as measured by the corporate goods price
index (CGPI), fell 1.3 percent in the year to March, more than
the median forecast for a 1.1 percent decline, BOJ data showed on
Tuesday. The pace of fall narrowed from a 1.6 percent drop in
February and was the smallest drop since January 2009.
[JPCGPY=ECI]

Bank of Japan Governor Masaaki Shirakawa told a financial
committee in the upper house of parliament that the central bank
would continue its efforts to pull Japan out of deflation, adding
that annual consumer price falls were expected to narrow as the
country’s output gap shrinks. [ID:nTKF106909]

Still, analysts say slack domestic demand will continue to
put downward pressure on consumer prices.

Domestic final goods prices, a component of the wholesale
price index that loosely tracks the consumer price index, fell
0.7 percent in the year to March after falling 0.8 percent in
February.

High oil prices and a weak yen could push the BOJ to revise
up slightly its consumer price forecast for the year to March
2012 when it issues its twice-yearly outlook report later this
month, sources familiar with the bank’s thinking said on Tuesday.

“Assuming the yen stays weak and crude oil prices continue to
rise, it won’t be surprising for the CPI forecast to be revised
up,” one source said on Tuesday. Another source expressed a
similar view. Both declined to be named due to the sensitivity of
the matter.

The BOJ currently expects deflation to last for three years
until March 2012. It will review that prediction as well as its
economic growth forecasts when it issues its twice-yearly outlook
report on April 30.

With the economy improving steadily, the BOJ may revise up
its consumer price forecast for the year to March 2012 to zero
change or slight positive growth from a 0.2 percent drop forecast
three months ago, the sources said.

A solid recovery in exports to the region has driven Japan’s
recovery that started last year after it had suffered its worst
recession in many decades.

But domestic demand has remained in the doldrums, except for
stimulus-fuelled buying of selective goods, leaving prices under
pressure.

The Bank of Japan eased monetary policy in December and again
in March, after the government declared Japan was in deflation
and put pressure on the central bank to do more to fight price
falls.
Investing Research

(Reporting by Stanley White; Editing by Hugh Lawson)

UPDATE 1-Japan annual wholesale price fall slows on rising oil