TOKYO (Feb 27): Japan’s inflation slowed more than forecast in January, highlighting central bank chief Haruhiko Kuroda’s challenge in reflating the world’s third-biggest economy.

Consumer prices excluding fresh food rose 2.2 percent from a year earlier, the statistics bureau said on Friday.

That was less than the median projection of 2.3 percent.

Stripped of the effect of sales-tax increase last April, core inflation -- the Bank of Japan’s key measure -- was 0.2 percent.

While the tumble in oil prices will pull down inflation in the near term, underlying consumer price trends remain on track for the BOJ’s 2 percent goal, Kuroda said last week.

Economists at BNP Paribas and JPMorgan Chase see consumer prices falling in the coming months.

“The BOJ will have to bolster stimulus as their price target remains too high,” said Kiichi Murashima, an economist at Citigroup.

Twenty-six of 35 economists in a Feb 5-10 Bloomberg survey forecast the BOJ will expand monetary stimulus by the end of October.

Oil prices
The yen has decline 8.5 percent against the dollar since Kuroda boosted already-unprecedented easing on Oct 31. The Japanese currency was trading at 119.36 at 8:49am in Tokyo.

Overall consumer prices increased 2.4 percent from a year earlier. Prices less food and energy rose 2.1 percent.

Kuroda said on Thursday in parliament that the plunge in oil prices is positive for the economy and will put upward pressure on inflation in the longer term as lower costs for companies and increased purchasing power for households boost growth.

Dubai crude oil -- a benchmark for Middle East supply to Asia -- has fallen about 50 percent from June last year. Japan imports almost all of the oil it uses.

Etsuro Honda, an adviser to Prime Minister Shinzo Abe, said this week the central bank can wait until around June to judge if more action is needed.

Another Abe adviser, Koichi Hamada, said it’s understandable if the BOJ reaches its target later than initially planned given the degree of the oil drop.

Hamada said on Feb 25 the BOJ should switch its main inflation gauge, to strip out the impact of volatile energy costs.