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Japan consumer inflation slows, piling pressure on BOJ to act

By Tetsushi Kajimoto

TOKYO (Reuters) - Japan's annual core consumer inflation slowed for a second straight month in September, adding to evidence the Bank of Japan will miss its 2 percent price goal even as it dismisses growing doubts about the efficacy of its money-printing programme.

The reminder of the stiff challenge facing the BOJ in its quest to reflate the economy and end grinding deflation comes as its board prepares to maintain its massive asset purchase plan at its policy review later on Friday, and rule out fresh stimulus in the near term.

The 3.0 percent year-on-year gain in the core consumer price index, which excludes volatile prices of fresh food but includes oil products, matched the median estimate, data by the Ministry of Internal Affairs and Communications showed. The pace slowed from a 3.1 percent rise in August.

Stripping out effects of April's sales tax increase to 8 percent from 5 percent, the annual core consumer inflation was 1 percent in September, halfway to the BOJ's goal which analysts say is certain to be missed by the target date.

"Falling energy prices will continue to weigh on CPI, which could break below 1 percent next month," said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

"The hurdles to meeting the BOJ's price target are getting higher. Expectations for additional monetary easing could be brought forward."

Underscoring that stark reality, household spending fell for a six straight month in September from a year earlier as April's sales tax hike kept a lid on private consumption, while the job-availability rate eased from its 22-year high in August.

The BOJ, however, has argued that inflation will accelerate again from the latter half of the current fiscal year to March on the back of a tightening output gap and labour market, a view seen as being far too optimistic by analysts.

Still, the central bank is in no mood to add to its hyper-loose policy anytime soon, though many analysts expect it will be forced into action eventually to achieve its price goal.

The BOJ has stood pat since April 2013 when it unleashed an unprecedented burst of monetary stimulus, pledging to achieve a 2 percent inflation within roughly two years via aggressive asset purchases.

Sources told Reuters that the BOJ may trim its inflation forecasts on Friday and admit that falling oil prices will delay a pick-up in price growth by several months, but keep its view that inflation will meet its target next year.

The central bank is also expected to slash its economic growth projection for the current fiscal year, as April's tax hike chilled private consumption that accounts for about 60 percent of the economy and triggered the deepest slump in the second quarter since the 2009 global financial crisis.

Analysts polled by Reuters expect an annualised 2.9 percent bounce in July-September, but speculation persists that Abe may forego a planned tax hike to 10 percent next year when he makes a decision in December, given the fragility of the recovery.

Highlighting the lingering pain from the April's tax hike, household spending fell 5.6 percent in September from a year earlier, down for a sixth straight month, data by the internal affairs ministry showed.

That compared with a 4.3 percent annual decline seen by economists and a 4.7 percent fall in August.

In a sign the job market may be peaking, the job availability rate fell to 1.09 in September from the prior month's 22-year high of 1.10, posting the first decline since May 2011, separate data showed.

The country's jobless rate stood at 3.6 percent, up from 3.5 percent in August, labour ministry data showed.

(Additional reporting by Stanley White and Sumio Ito; Editing by Shri Navaratnam)