Japanese consumer prices rose less than expected in December from a year ago, adding to doubts over the Bank of Japan's ability to raise interest rates next month, sending the yen lower and bond futures to a one-month high.
Japan's core consumer price index (CPI), which excludes volatile fresh food prices, rose 0.1% in December from a year earlier, government data showed on Friday, less than economists' consensus forecast of a 0.2% rise.
Core CPI in the Tokyo area, which is announced a month before nationwide figures, rose 0.2% in January from a year ago, matching the consensus forecast. "Today's data will raise the hurdle for a rate hike in February," said Kiichi Murashima, economist at Nikko Citigroup.
"Even though the BOJ talks about a forward-looking approach in how they conduct monetary policy, these figures will make it hard to justify a near-term rate hike," he added.
The Japanese yen fell against the U.S. dollar just before the release of data, while Japanese government bond futures were up 0.23 point at 134.93, rising above 134.86 for the first time since late December.
The BOJ kept rates on hold earlier this month, saying it was prudent to wait for more data given mixed economic indicators, even though financial markets had briefly priced in a rate hike prior to the meeting.
The central bank has cited softness in consumption and consumer prices since the middle of last year as part of the reasons it should wait before raising rates.
Although Japan currently enjoys the longest period of expansion in the post-war era, growth rates have been sluggish, restrained by a lacklustre rise in personal consumption.
Many economists think growth in consumer prices will remain subdued in coming months due to recent falls in oil prices and a slow pace of growth in wages.
Some think the core CPI may even post year-on-year falls in the months ahead as it loses support from crude oil prices, which fell to 20-month lows earlier this month.
Excluding food and energy prices, consumer prices fell 0.3% in December from a year earlier, reinforcing doubts about a February rate hike. Some said it all depended on how central bankers would interpret the numbers.
"The point is whether the BOJ should consider the current weakness in core CPI growth as a temporary factor and attach greater importance to the future outlook by analysing other data," said Masaaki Kanno, chief economist, J.P. Morgan.