Japan inflation to slow slightly, but cost-push pressures drag on consumption: Reuters poll

By Tetsushi Kajimoto

TOKYO (Reuters) - Japan's annual core consumer price growth is expected to have slowed slightly, a Reuters poll showed, but persistent cost-push pressures kept inflation at or above the central bank's 2% target for two years and remained a drag on household consumption.

The core consumer prices index (CPI), which excludes fresh foods but includes oil products, is expected to rise 2.6% year-on-year in March, after a 2.8% gain in the previous month, according to the forecast of 18 economists. The Ministry of Internal Affairs and Communications will release the data on April 19.

The index is closely watched by Bank of Japan policymakers as a key gauge of inflation trends.

"The pace of price hikes are slowing with items particularly food. We expect the extent of price gains to narrow from the previous month," said Junpei Fujita, a senior analyst at Mitsubishi UFJ (NYSE:MUFG) Research and Consulting.

The inflation data as well as other indicators include trade and machinery orders will be released amid a backdrop of concerns around persistent weakness in the yen. The Japanese currency slumped to 34-year lows against the dollar beyond 153 yen this week, which could boost import prices and add to already stiff cost-of-living pressures.

Last month, the Bank of Japan ended negative interest rates in a landmark shift away from its decade-long super-easy accommodative policy after major firms offered big pay raise at annual wage talks in mid-March.

Still, inflation-adjusted real wages struggled to outpace price hikes and remained in negative territory for nearly two years, depriving households of purchasing power and dragging on consumption.

Japanese policy makers are counting on external demand to offset sluggish domestic consumption, but exports have not gained sufficient strength even with the help of a weaker currency, analysts say.

Ministry of Finance data out on April 17 is expected to show Japan's exports grew 7.0% year-on-year in March, slowing slightly from the previous month. Imports were forecast to have fallen 4.7%, compared with a 0.5% gain in February, resulting in a trade surplus of 299.9 billion yen, swinging from 379.4 billion yen deficit in February.

"The yen weakening helped boost the value of exports thanks to rising exporting prices, even though exports in volume terms were weakening," said Takeshi Minami, chief economist at Norinchukin Research Institute.

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Core machinery orders were expected have rebounded just 0.8% month-on-month in February from a 1.7% decline in the previous month, highlighting the tepid domestic demand conditions. The core orders are likely to have fallen 6.0% in February year-on-year, after 10.9% drop in the previous month.