Prolonged deflation is adding to strains for the economy as it grapples with a strong yen and slowing global growth, just as it tries to emerge from a slump caused by the devastating earthquake in March.
The Bank of Japan has pledged to keep interest rates virtually at zero until consumer inflation of 1 percent is foreseen.
“Price falls for television sets and other durable goods slowed somewhat, while gasoline prices rose slightly more than expected, which was the reason behind the rise in consumer prices,” said Junko Nishioka, chief economist at RBS Securities Japan.
“But consumer prices are unlikely to rise much and will hover around zero as commodity price rises are slowing. Durable goods prices are also expected to fall with inventory building up and weak sales likely to trigger further price competition.”
The core consumer price index (CPI), which includes oil products but excludes volatile prices of fresh fruit, vegetables and seafood, rose 0.1 percent in July from a year earlier, against the median estimate for a 0.1 percent fall.
The so-called core-core inflation index, which excludes food and energy prices and is similar to the core index used in the US, fell 0.5 percent.
Core consumer prices in Tokyo, available a month before the nationwide data, fell 0.2 percent in the year to August, against a median estimate for a 0.1 percent drop.
The government sharply revised down this year’s CPI data earlier this month after changing the base year and the components making up the index to better reflect trends in consumer spending.
The government revises the base year for the data once every five years.
Japan’s economy is expected to rebound in the July-September quarter, probably at the fastest rate among major industrialized nations as exports and factory output return to pre-disaster levels. But a soaring yen and slowing global growth cloud the prospects for a sustained recovery.
Japanese authorities intervened unilaterally in the currency market and the BOJ eased monetary policy on Aug. 4.
But the steps have not stopped investors from seeking out the yen as a safe haven amid debt crises in Europe and the US, with the Japanese currency hitting a fresh record high against the dollar last week.
The authorities are on alert for possible sharp market swings on Friday.
The BOJ will consider easing monetary policy further, possibly before its next scheduled rate review on Sept. 6-7, if sharp yen rises push down share prices enough to severely hurt business sentiment, sources familiar with the central bank’s thinking have said.
