UPDATE 1-Japan CPI falls after high school fees scrapped

* Core CPI falls 1.5 pct in April yr/yr vs f’cast 1.4 pct

* Scrapping tuition fees lowers core CPI by 0.54 pct point

* Excluding tuition factor, deflation seen easing – analysts
(Adds details, analyst comments)

By Tetsushi Kajimoto and Stanley White

TOKYO, May 28 (BestGrowthStock) – Japan’s core consumer prices marked
their 14th straight month of annual declines in April with the
pace of the fall accelerating due to a government policy of
scrapping public high school tuition fees.

Excluding this factor, however, annual consumer price falls
narrowed in a sign that Japan’s economic recovery was gradually
easing deflationary pressures, and analysts said the central bank
was unlikely to ease policy further unless market volatility
proved too disruptive.

Still, the jobless rate rose in April from March, suggesting
the export-driven recovery was still fragile.

“Price falls are still big but we’re seeing deflationary
pressure easing. The economy has been recovering for more than a
year and the effect is finally starting to show on prices,” said
Yoshiki Shinke, senior economist at Dai-ichi Life Research
Institute.

“But with price declines still big, pulling out of deflation
won’t be easy. Prices won’t turn positive until the latter half
of 2011. Even so, prices are moving roughly in line with the Bank
of Japan’s forecasts.”

The core consumer price index, which includes oil products
but excludes volatile fresh fruit, vegetable and seafood prices,
fell 1.5 percent in the year to April, slightly faster than a
median market forecast for 1.4 percent and bigger than a 1.2
percent drop in March. [JPCPI=ECI]

A government policy of abolishing public high school tuition
fees from April to support householders pushed down annualised
core CPI by 0.54 percentage point, the Ministry of Internal
Affairs and Communications said on Friday.

The government policy was also largely behind a record 1.6
percent annual fall in the so-called core-core inflation index,
which excludes food and energy prices and is similar to the core
index used in the United States.

Analysts say the price moves are roughly in line with the
Bank of Japan’s forecast, which is for consumer prices to turn
positive in the business year ending in March 2012. The BOJ’s
forecasts exclude the effect of the government’s policy on high
school tuition fees.

“Today’s CPI data is neutral for the Bank of Japan’s monetary
policy, and the central bank is unlikely to introduce additional
policy measures,” said Kyohei Morita, chief Japan economist at
Barclays Capital.

Finance and Economics Minister Naoto Kan told reporters after
the data release that Japan remained in moderate deflation, which
the government and the BOJ will tackle together.

Strong exports to emerging Asian economies have helped the
Japanese economy grow 1.2 percent in January-March, outpacing
growth in the United States and the euro zone in the same period.
[ID:nTOE64J003]

But the export-driven recovery has yet to broaden to wider
sectors of the economy. Japan’s jobless rate rose to 5.1 percent
in April from 5.0 percent in March and the availability of jobs
dropped for the first time in eight months, data from the
Internal Affairs ministry showed on Friday.

Stock Market Analysis

(Editing by Charlotte Cooper)

UPDATE 1-Japan CPI falls after high school fees scrapped