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The Canadian Press - ONLINE EDITION

Japan inflation eases in June, highlighting impact of sales tax, challenge to central bank

TOKYO - Japan's inflation rate eased slightly in June as a sales tax hike stunted demand, the government reported Friday.

The core consumer price index, which does not include prices for fresh foods, rose 3.3 per cent in June, down from the 3.4 per cent in May, the report said. It was the 13th straight month of inflation, however, after years of sagging prices that sapped the vitality of the world's third largest economy.

Factoring out surging energy costs, such as a 10.6 per cent rise in gas prices, the increase was 2.3 per cent. Excluding the direct effect of the April 1 increase in the sales tax to 8 per cent from 5 per cent, the inflation rate was 1.3 per cent, the Bank of Japan said.

The central bank has set a 2 per cent inflation target, aiming to break Japan out of years of deflation, but forecasts that the rate will remain just above 1 per cent for the foreseeable future.

The central bank and government are seeking to spur demand and corporate investment in hopes of restoring Japan to sustained growth. But the need to improve tattered public finances through tax hikes has complicated that strategy.

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