Japan core consumer inflation eases slightly

Japan's core consumer inflation eased slightly in the year to June, underscoring the central bank's challenges in meeting its 2 per cent inflation target sometime next year, Reuters reported.

The slowdown would, however, come as no surprise to the Bank of Japan, which had said inflation would continue to slow to around 1 per cent in coming months as an increase in import costs from a weak yen faded.

The BOJ expected inflation to rise again with a tight labour market lifting wages.

The central bank was thus in no mood to consider expansion of stimulus any time soon, although according to some analysts, it might face pressure to act if the economic recovery lost momentum and failed to push up prices late this year.

Reuters quoted Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute as saying exports were weak and household spending - hit by the April sales tax hike, would not bounce back so strongly, which meant the economy lacked a strong driver ahead.

He added, the economy might not recover as strongly as expected, which would certainly affect price moves. He predicted that the BoJ might ease policy in April next year if inflation failed to approach 2 per cent by then.

The core consumer price index, which does not include prices for fresh foods, was up 3.3 per cent in June, down from the 3.4 per cent in May, according to a government report, Associated Press reported. This comes as the 13th straight month of inflation, however, after years of sagging prices that sapped the vitality of the world's third largest economy.

Factoring out surging energy costs, such as a 10.6 per cent increase in gas prices, the increase stood at 2.3 per cent. Excluding the direct effect of the 1 April increase in the sales tax to 8 per cent from 5 per cent, the inflation rate stood at 1.3 per cent, according to the Bank of Japan said.

The central bank had set a 2 per cent inflation target, in a bid to end deflation in the country however, it forecasts that the rate would remain just above 1 per cent for the foreseeable future.

According to commentators, even as the central bank and government sought to spur demand and corporate investment in hopes of restoring Japan to sustained growth, the need to improve tattered public finances through tax hikes had complicated that strategy.