Japan's CPI seen falling again in June, more headaches for BOJ

[July 22, 2016]  By Minami Funakoshi

TOKYO (Reuters) - Japan's consumer prices were expected to fall in June for the fourth straight month, a Reuters poll found, keeping alive market expectations the central bank will expand an already massive stimulus program to hit its 2 percent price goal.

Separate data next week is also expected to show exports slumped in June from a year earlier, a sign the economy is suffering from the hit from a strong yen and global uncertainties after Britain's vote to leave the European Union.

The core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, was expected to have fallen 0.4 percent in June from a year earlier, the poll of 21 economists found. This follows a 0.4 percent annual fall in May.

"Oil prices are lower than last year and there is a strong downward pressure on energy prices," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"In the past, prices had been raised partly because the yen weakened, but the rises in yen from early this year has been weakening upward pressure (on prices)," he added.

The internal affairs ministry will announce the CPI data at 8:30 a.m. on July 29 (2330 GMT July 28), the day the Bank of Japan meets for a closely-watched policy meeting.

Weak consumer prices add to headaches for the BOJ, which has pledged to raise inflation through heavy buying of government debt from the bond market and its controversial adoption of negative interest rates in January.

Sources have told Reuters the central bank may offer a slightly bleaker view on prices from its current assessment that the underlying trend inflation is "improving steadily" though this would not immediately trigger monetary easing if bank board members believed they could stick to their forecast that inflation would accelerate ahead.

Shoppers browse vegetables at a supermarket in Chiba, east of Tokyo February 26, 2014. REUTERS/Yuya Shino

In another blow to the BOJ, Japan's government cut its forecasts for consumer prices earlier this month, saying it expected prices to rise 1.4 percent for fiscal 2017, well below the 2 percent target the BOJ says will be met during the fiscal year ending in March 2018.Trade balance data, due on July 25, is expected to show exports fell 11.6 percent in June from a year earlier, the poll found, as a strong yen triggered by Britain's vote to leave the European Union weighed on Japanese companies' overseas profits.

The median forecast of 10 poll participants was that the BOJ on July 29 will cut its minus 0.1 percent interest rate to minus 0.2 percent.

And the median view of eight participants was for the central bank to increase its annual target for base money, or deposits and cash in circulation, to 85 trillion yen ($803.33 billion) from 80 trillion yen.

While Japan's economy grew faster than initially expected in the first quarter, worries remain over slow consumer spending and weak exports.

(Reporting by Minami Funakoshi; Editing by Eric Meijer)

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