Prices excluding fresh food slid 1.3 percent from a year earlier after dropping 1.7 percent in November, the statistics bureau said in Tokyo.
The Bank of Japan this week affirmed its forecast for prices to keep falling until March 2012, albeit at a slower pace because of higher oil costs. Governor Masaaki Shirakawa said beating deflation is a critical challenge” and the bank will keep interest rates low to aid the economy.
Finance Minister Naoto Kan this week said in parliament he wants the central bank to take deflation into account when it sets monetary policy. He made the remark while the BOJ board held a meeting in which it kept the key rate at 0.1 percent.
BOJ policy makers said core prices, their main gauge of inflation, will slip 0.5 percent in the year that starts in April and 0.2 percent in the following 12 months. In October they predicted declines of 0.8 percent and 0.4 percent.
Consumer prices excluding energy and food, which economists say are a better reflection of domestic price trends because Japan imports most of its oil and edibles, fell 1.2 percent in December from a year earlier.
In Tokyo, core prices slid 2 percent in January. The figures for the capital are released a month earlier than nationwide data, making them a harbinger of price trends.
Falling wages and job losses have been discouraging spending by households and prompting companies to make discounts to attract customers.
Consumers’ preference for cheaper products is eroding sales at department stores, which have fallen for 22 months. Seven & I Holdings Co., Japan’s largest retailer, this week said it will shut a Seibu outlet in Tokyo’s Ginza district on Dec. 25, its third department-store closure in two years.
The government declared for the first time in three years in November that Japan has slipped back into deflation.