Japan's consumer inflation eased in February for a seventh straight month increasing expectations that the Bank of Japan (BOJ) will have to undertake further stimulus measures to achieve its price target.
The consumer price index (CPI) rose 2.0 percent in February from the year-ago period, government data showed on Friday, compared with Reuters' forecast for a rise of 2.1 percent and down from a 2.2 percent rise in January.
Excluding the effects of the consumption sales tax hike in April, the nationwide consumer price index was flat in February after increasing 0.2 percent in January. That marks the first time since May 2013 that it stopped rising.
"I think this will keep the pressure on the Bank of Japan to keep their foot on the accelerator," Joe Zidle, portfolio strategist at Richard Bernstein Advisors, told CNBC. "You've had this split between the BOJ and the government over quantitative and qualitative easing and I think this is going to force the to keep the spigots open."
"This is an economy thats showing data point after data point that its too weak to stand on its own," he added.
Many analysts believe the trend will continue.
"The Tokyo CPI result suggests that the nationwide core CPI will probably remain flat yoy in March. However, electricity and gas charges are expected to start declining from April onwards, putting larger downward pressures on the core CPI inflation rate going forward," it said in a note.
Goldman Sachs agrees: "Core CPI is expected to turn negative on a weak trend even ignoring cheap oil," it said in a note.
"For some time, now our inflation outlook has called for the core CPI to slow moderately after peaking on a year-on-year basis in April 2014. Today's February core national CPI data are broadly in line with our medium-term outlook. We forecast that core national CPI will turn negative year-on-year around the April-June quarter with the drop in energy prices cancelling out cost-push pressures from yen depreciation," it said.
However Zidle remains bullish on Japan.
"We think the Nikkei will continue to go higher through 2015 and the reason is because we're in a policy driven market here, not a fundamentally driven market, right? We're in a market that's being driven by Bank of Japan balance sheet expansion, weakening the yen, and in a policy driven market, ironically, bad news is good news," he said.
Japan's economy has been on the backfoot ever since the government raised nationwide consumption tax to 8 percent from 5 percent last April, in a bid to reduce the country's massive debt.
The economy narrowly escaped a recession in the fourth quarter of 2014, expanding an annualized 1.5 percent, after two straight quarters of contraction.
In other data, household spending for February fell 2.9 percent from the year before marking the eleventh straight month of decline. That was better than expectations for a 3.2 percent decline and up from January's 5.1 percent decline.
Meanwhile, retail sales fell 1.8 percent in February, worse than expectations for a 1.5 percent decline but better than a 2 percent drop in January.
"While probably having undervalued the strength of headwind from the fall in real income so far, we are still bullish to the consumption in coming months (including this month) as consumer sentiment has begun to improve with good prospects on the wage hike and higher equity prices (wealth effects)," JPMorgan said in a note.
"Indeed, sales in department stores (which mainly sell luxury goods) rose impressively in February, even excluding the booming purchases of foreign tourists (the department stores are in general merchandise category in the retail sales)," it said.
The jobless rate edged down to 3.5 percent in February from 3.6 percent in the previous month.