Japan December core consumer prices fall at slowest pace in nearly a year

By Leika Kihara

TOKYO (Reuters) - Japan's core consumer prices fell at the slowest annual pace in nearly a year in December, data showed on Friday, a sign inflation should pick up in coming months on a rebound in oil costs and rising import costs from a weak yen.

The data will be among factors the Bank of Japan will scrutinise at its policy meeting early next week, where it is widely expected to keep monetary policy steady and maintain its upbeat inflation projections.

The nationwide core consumer price index, which includes oil products but excludes volatile fresh food prices, slipped 0.2 percent in December from a year earlier, government data showed, compared with a median market forecast for a 0.3 percent fall.

It was the 10th straight month of declines but the smallest fall since February, when there was a flat reading.

Core consumer prices in Tokyo, available a month before the nationwide data, fell 0.3 percent in January from a year earlier, against the median market forecast for a 0.4 percent drop. It followed a 0.6 percent decline in December, the biggest annual drop in nearly four years.

Japan posted a third straight quarter of annual expansion in July-September and analysts expect growth to pick up in coming quarters, thanks to a recent pick-up in exports and factory output driven by improvements in emerging economies.

Policymakers hope that prospects of a sustained recovery will prompt companies to boost wages and household spending, seen as a soft spot in the world's third-largest economy.

While prospects of accelerating inflation offer some relief for the BOJ, many central bankers remain wary on whether price rises driven by external factors could help speed up inflation to their ambitious 2 percent target.

Data showed overall consumer prices rose 0.3 percent in December from a year earlier.

(Reporting by Leika Kihara; Editing by Richard Borsuk)