Cheaper cellphone charges to weigh on BOJ's inflation forecast

[April 16, 2021]  By Leika Kihara

TOKYO (Reuters) - The Bank of Japan's new price forecast due later this month will likely come under significant downward pressure due to cuts in cellphone charges, sources said, adding to doubts about when it will achieve its elusive 2% inflation target.

Such renewed weakness in prices would contrast with recent rises in U.S. inflation that is complicating the Federal Reserve's communication with financial markets, and add pressure on the BOJ to maintain its massive stimulus for years to come, analysts say.

The impact of cellphone fee cuts, however, will be transitory and won't affect the BOJ's monetary policy or its view that an expected economic recovery will push up prices eventually, three sources familiar with its thinking said.

"The impact of cellphone fee cuts could be significant," one of the sources said. "But what's important is the broad price trend excluding such one-off factors, which remains solid," the source said, a view echoed by two other sources.

All sources spoke on condition of anonymity as they were not authorized to speak publicly.

Nodding to Prime Minister Yoshihide Suga's calls to ease burdens on households, major carriers slashed cellphone fees from April - a factor the BOJ will incorporate in quarterly projections due at its next policy meeting on April 26-27.

The government has not published estimates on how much the lower fees could affect the consumer price index (CPI). The April CPI data won't come out until after the BOJ's meeting.

Some analysts expect the fee cuts to push down core CPI by up to 0.6% point. That may more than offset factors pushing up prices, such as rising energy costs and a termination of a government discount campaign for domestic travel, analysts say.

"If it weren't for the cellphone fee cuts, core consumer inflation could have approached 1% this fiscal year," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

In current forecasts made in January, the BOJ expects core consumer prices to rise 0.5% in the current fiscal year that began in April, and accelerate to 0.7% the following year.

The cellphone fee cuts will mainly affect this year's CPI.

Economists polled by Reuters expect core consumer prices to rise 0.4% this fiscal year and 0.5% next year.

Japan's economy has emerged from last year's slump caused by the pandemic, though analysts expect any recovery to be modest as a resurgence in COVID-19 infections weigh on consumption.

BOJ Governor Haruhiko Kuroda warned on Friday it will take time for inflation to hit the bank's 2% target, but shrugged off the chance of ditching the goal.

(Reporting by Leika Kihara; Editing by Kim Coghill and Toby Chopra)

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