Japan puts out mixed bag of data ahead of tax hike

Japan Feb data signals strength: Expert

Japan on Friday released a mixed bag of economic data, which have been closely-watched ahead of the country's first sales tax hike in 17 years that goes into effect next week.

The nationwide core consumer price index rose for a ninth straight month in February, up 1.3 percent from the year-ago period, in line with forecast by analysts polled by Reuters.

Meanwhile, the forward-looking Tokyo core consumer price index climbed 1 percent in March from the year before, slightly higher than a Reuters forecast for a 0.9 percent rise.

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Household spending fell 2.5 percent in February year on year, short of the Reuters forecast for a 0.1 percent increase.

Retail spending surprised on the upside though, gaining 3.6 percent in February on year, better than expectations of a 3.2 percent rise.

Yuzuru Yoshikawa | Bloomberg | Getty Images

The jobless rate in February stood at 3.6 percent, against market expectations of 3.7 percent.

Major yen crosses were little changed following the data. Against the greenback, the currency hovered at 102.1 and 140.4 against the euro. The Nikkei meanwhile opened 0.36 percent lower.

The data deluge comes ahead of a hike in the sales tax – set to rise to 8 percent from 5 percent from April 1 – which many economists anticipate could take a toll on consumer spending and derail Japan's fragile economic recovery.

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Following the last tax rise in 1997, when Japan lifted the sales tax to 5 percent from 3 percent, the economy fell into recession shortly after as consumers front-loaded purchases ahead of the hike and refused to spend after.

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"That was the bad experience last time but i think it is quite unlikely [this time around]," said Martin Schultz, senior economist at Fujitsu Research Institute. "This is an ageing society so people are very careful with their plans. They have been buying some things forward but they will continue to buy [after the tax hike]."

Emma Lawson, senior currency strategist at National Australia Bank, says the months following the sales tax hike will be key for the Bank of Japan.

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"If you don't see an increase in spending and a pick up in inflation, that's going to be a push for BOJ [Bank of Japan] to expand QE which will weaken the yen – the one thing that can help Japan at the moment. So there will be a lot of pressure if these numbers don't improve in the short term," she said.

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