Japan's Yoshihiko Noda.YURIKO NAKAO
Japan's core consumer prices edged up in April from a year earlier due to higher energy prices, but the meagre pace was a sign the fragile economy was still a long way from achieving the central bank's target of 1 per cent inflation.
The data suggests the Bank of Japan will remain under pressure to loosen monetary policy further to beat deflation and shield the economy from any damage from a strong yen.
Core consumer prices, which include oil prices but excludes volatile fresh food costs, rose 0.2 per cent in April from a year earlier, more than a median market forecast for a 0.1 per cent rise. Core prices also rose 0.2 per cent in the year to March.
The so-called core-core inflation index, which excludes food and energy prices and is similar to the core index used in the United States, fell 0.3 per cent in April from a year earlier, in a sign weak household demand is keeping companies from passing on rising raw material costs to consumers.
"Energy prices remain a big factor behind the rise in consumer prices," said Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting.
"But energy prices have started to fall, so we should be prepared for some year-on-year declines in core CPI. Given the trend for CPI, the BOJ will be expected to do more. The likely options are increasing JGB purchases."
Core consumer prices in Tokyo, available a month before the nationwide data, fell 0.8 per cent in May from a year earlier, bigger than a market forecast for a 0.6 per cent decline.
Japan's economy rebounded in the first quarter from last year's stagnation and is seen headed for a recovery due to spending for rebuilding from last year's earthquake.
But Europe's deepening debt crisis and persistent yen gains are clouding the outlook, keeping alive market expectations that the BOJ is probably not done easing policy after having offered monetary stimulus in February and April.