BOJ tankan shows slight pickup in corporate inflation expectations

By Stanley White

TOKYO (Reuters) - Japanese companies' inflation expectations picked up slightly in June from three months ago as labour shortages and high material costs pointed to an acceleration in consumer prices over the next few quarters.

Companies surveyed by the Bank of Japan expect consumer prices to rise 0.8 percent a year from now, higher than their projection for a 0.7 percent increase three months ago.

Companies also expect consumer prices to rise an annual 1.1 percent three years from now, up from a 1.0 percent annual increase seen in the previous BOJ survey.

The data come one day after the BOJ's tankan survey on corporate sentiment showed big manufactures are the most confident in three years, offering some hope that prices will rise, albeit at a gradual pace.

"Labour shortages will push up inflation expectations over time," said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.

"However, this is a slow process, so the BOJ's monetary policy will be on hold for the time being."

Core consumer prices, which include oil products but excludes fresh food prices, rose 0.4 percent in May from a year earlier, marking the fifth straight month of gains and accelerating from a 0.3 percent increase in April, data last week showed. [nL3N1JP2XR]

However, consumer prices were unchanged in May after stripping out the effect of energy costs, underscoring the BOJ's struggles to push inflation to its 2 percent target.

The BOJ is likely to cut its consumer price forecast for the current fiscal year at a quarter review of its projections in July, people familiar with its thinking told Reuters.

However, a slight uptick in inflation expectations, combined with increased optimism in the corporate sector, could give the BOJ reason to keep its longer-term price forecasts unchanged,

The BOJ started the survey on corporate price expectations from the tankan in March 2014 to gather more information on inflation expectations, key to its current stimulus programme.

(Reporting by Stanley White; Editing by Shri Navaratnam)