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Japan Consumer Prices Edge Down, Jobless Rate at Nine-Year Low

Japanese core consumer prices fell slightly as expected in May from a year earlier, supporting the widespread view that the Bank of Japan could raise interest rates as early as August.

Separate data showed the jobless rate remained at a nine-year low of 3.8% in May, while household spending rose 0.4% from the same month a year earlier, climbing for the fifth straight month.

The core consumer price index (CPI), excluding volatile fresh food prices, fell 0.1% in May from a year earlier, matching expectations and following a 0.1% fall in April, government data showed on Friday.

The core CPI for the Tokyo area, which is released a month ahead of the nationwide figures, fell 0.1% in June, against a consensus forecast for a 0.1% increase.

"Tokyo CPI figures are a bit weak. Rising pressure on services prices after the new fiscal year began has been tame, and prices of durable goods are not rising much either," said Yasuhiro Onakado, chief economist at Daiwa SB Investments.

"The Bank of Japan has been saying it will raise interest rates as long as the economy keeps expanding, even if consumer prices are still falling. So the data is unlikely to affect the timing of the next rate hike, which I expect in August," he added.

Financial markets reacted little to the consumer prices data, with the yen steady against the dollar around 123.15.

Traders are now focusing on the BOJ's quarterly tankan corporate survey due out Monday for clues on the timing of the next rate rise.

Japan's core inflation has been subdued despite an ongoing recovery in the world's second-largest economy, with year-on-year changes in consumer prices hovering below zero since February due in part to oil prices being down from the previous year.

The BOJ has been saying that consumer prices will likely stay flat in the short term, but will pick up in the long run due to a tighter output gap in the economy and anticipated rises in wages.

The central bank has said it will raise rates gradually in line with improvements in the economy and prices, and many analysts expect the next rate rise to come as early as August.

The BOJ has kept monetary policy on hold since raising the key overnight call rate target to a decade-high 0.50% in February, which was the first rate hike since July last year.

Japan is currently enjoying its longest period of expansion in the postwar era, albeit at a slower pace than in previous booms, on firmness in corporate capital spending and exports.

A separate survey showed on Friday that manufacturing activity in Japan fell for the fifth straight month to a four-year low in June as sluggish domestic demand led to a drop in the volume of new orders for the first time since 2004.

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