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With pause in inflation, many brace for retreat

TOKYO -- After notching up 0.1% gains for two straight months, Japan's core consumer price index remained unchanged on the year in January, prompting speculation of prices receding in the near future.

     Also announced Friday, the CPI for Tokyo's 23 wards, considered a leading indicator for the rest of the country, fell 0.1% for February. Both the national and Tokyo indexes exclude fresh foods, whose prices are known to be volatile.

     Energy prices tumbled 10.7% from a year earlier in January. Price growth in household durable goods and overseas package tours has lost steam.

     Food prices excluding perishables rose 2.1% in January, weaker than the 2.3% pace in December and the first such cooling off since July.

     The Bank of Japan's index, with excludes fresh foods and energy, climbed 1.1% in January. It was down 0.2 point from December, the first time the pace has weakened in a year.

     Many analysts, such as UBS Securities economist Daiju Aoki, see the national CPI starting to drop in March. The rise in food prices fueled by the weak yen has hit a pause, and corporations are not as eager to raise prices in the face of lackluster individual consumption.

     With an eye on the inflation target of 2%, the Bank of Japan decided on its negative-rate policy in late January. But inflation "will have a rather difficult time meeting the target around the first half of fiscal 2017, as predicted by the BOJ," said Tomo Kinoshita, chief economist at Nomura Securities, voicing the possibility of further easing measures.


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