Core consumer prices, which exclude fresh food, fell 0.1 percent from a year earlier, the government said in Tokyo on August 31, matching the median estimate of economists. Factory output dropped 0.4 percent and household spending slipped 0.1 percent.
Bonds rose as investors speculated the Bank of Japan would delay raising interest rates until it can gauge the effects of the U.S. mortgage recession on growth in the nation's biggest export market. Central bank Governor Toshihiko Fukui said last week the bank will decide policy by examining economic data and financial-market moves.
"Given the market turmoil and its negative implications for Japan's production and exports'' the Bank of Japan will find it hard to ignore negative data on consumer spending, said Kiichi Murashima, an economist at Nikko Citigroup Ltd. in Tokyo.
The yield on Japan's 10-year bond fell 2 basis points to 1.545 percent at 10:53 a.m. in Tokyo. The yen traded at 116.06 per dollar from 116.02 before the reports were published.