Japan's annual core consumer inflation slowed to a seven-month low in December as soft household spending kept firms from raising prices, a further sign of the growing challenge faced by the central bank in achieving its elusive 2% target.

The data comes ahead of the Bank of Japan's rate review next week, where the nine-member board is seen cutting its price forecasts and warning of heightening global uncertainties.

The core consumer price index, which includes oil products but excludes volatile fresh food costs, rose 0.7% in December from a year earlier, government data showed on Friday, slowing from the previous month's 0.9% gain.

It fell short of a median market forecast for a 0.8% gain and was the slowest pace of increase in seven months.

The data underscores the fragile nature of Japan's economic recovery, as escalating Sino-U.S. trade frictions and slowing Chinese growth weigh on exports and business sentiment.

Core consumer inflation may grind to a halt in coming months as recent oil price falls push down gas and electricity bills, which could put the BOJ under pressure to ramp up an already massive stimulus programme.

Recent falls in crude oil prices were already pushing down gasoline costs, and will likely lead to declines in electricity and gas bills from around March or April, said a government official briefing reporters on the data.

BOJ officials have said they will look through the effect of temporary factors like oil price moves and focus on how the underlying strength of the economy affects prices.

But the central bank may find it difficult to justify its view a continued economic recovery will gradually push up inflation, as fears of slowing global demand could discourage firms from boosting wages and giving consumers more disposable income.

An index the BOJ focuses on - the so-called core-core CPI that strips away the effect of both volatile food and energy costs - rose just 0.3% in December, flat from the previous month's pace.

Stubbornly low inflation has forced the BOJ to maintain a radical stimulus programme despite the rising costs, such as the hit to financial institutions' profits from years of low rates.

Japan's economy shrank in the third quarter of last year and some analysts suspect that any rebound in October-December may have been weaker than initially expected, as trade protectionism and slowing global demand hurt business sentiment.

The USD/JPY has registered a daily close above the major 109.16 Fibo, a 50% retrace of the 114.21 to 104.10 (November to January) drop, which has in turn unmasked the falling 30-day MA which is currently at 110.41.

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