Japan consumer prices fall for second month, spending drops

By Leika Kihara

TOKYO (Reuters) - Japan's core consumer prices fell 0.1 percent in the year to September, a second straight month of declines, keeping inflation distant from the central bank's 2 percent target.

While the decline was mostly due to slumping energy costs, it will keep the Bank of Japan under pressure to do more to rebuild growth and accelerate inflation in a country mired in nearly two decades of grinding price declines.

The BOJ is likely to keep monetary policy steady but cut its economic and price forecasts for the current fiscal year in a twice-yearly outlook report due out on Friday.

The 0.1 percent drop in the core consumer price index (CPI), which includes oil products but excludes fresh food prices, compared with a median market forecast for a 0.2 percent decline and followed a 0.1 percent fall in August, data by the Internal Affairs Ministry showed on Friday.

Japan's consumer inflation has ground to a halt on renewed declines in oil prices, keeping alive speculation the central bank will expand stimulus again soon to show its determination of hitting an ambitious 2 percent price growth target.

The central bank has said it will look through the effect of falling oil costs on inflation, stressing that companies are becoming more comfortable raising prices of their goods due to a rebound in household spending.

The so-called core-core CPI, which strips away both energy and volatile food costs, rose 0.9 percent in the year to September, the data showed.

While slumping oil prices put downward pressure on inflation, they benefit companies and households by pushing down fuel costs.

In a sign such benefits have failed to reach consumers yet, household spending fell 0.4 percent in September from a year earlier, confounding a median market forecast for a 1.2 percent rise, data showed on Friday.

But the job market continued to tighten, suggesting that wages and household income will increase in the coming months.

The jobless rate stood at 3.4 percent in September and the job-to-applicants ratio rose to 1.24, hitting the highest level since January 1992, separate data showed.

(Reporting by Leika Kihara; Editing by Eric Meijer)

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