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TOKYO (Reuters) - Japan's core consumer inflation eased slightly in the year to June as an increase in import costs from a weak yen faded, highlighting the challenges the central bank faces in meeting its 2 percent inflation target sometime next year.
But the slowdown comes as no surprise to the Bank of Japan, which has said inflation will continue to slow to around 1 percent in coming months as the impact of the weak yen dwindles, before it picks up again as a tight labor market lifts wages.
The nationwide core consumer price index, which excludes volatile prices of fresh food but includes prices of oil products, rose 3.3 percent in June from a year earlier, data from the Ministry of Internal Affairs and Communications showed on Friday.
That matched the median market forecast and followed a 3.4 percent gain in the year to May.
Excluding the impact of a sales tax hike that kicked off in April, core CPI rose 1.3 percent in the year to June, slower than the 1.4 percent increase in the year to May.
The BOJ has stressed that Japan is on track to meet its 2 percent inflation target, as improvements in the economy allow more firms to raise prices without scaring away consumers.
"The conquest of deflation in Japan is now in sight," BOJ Deputy Governor Hiroshi Nakaso said on Wednesday, signaling his confidence for a sustained recovery.
But many analysts still doubt whether inflation will accelerate as quickly as the BOJ projects given that the boost to prices from the weak yen will soon start to fade.
The BOJ argues that tighter labor markets will nudge up wages and help sustain price rises, although it is uncertain whether companies will raise wages enough to make up for the loss of household spending power from the tax hike and inflation.
The BOJ has estimated that the sales tax hike - to 8 percent from 5 percent on April 1 - would add 1.7 percentage points to annual consumer inflation in April, and 2.0 points from the following month. The internal affairs ministry does not provide official estimates.
The BOJ has stood pat on monetary policy since deploying an intense burst of stimulus in April last year, when it pledged to double base money via aggressive asset purchases to accelerate inflation in two years and end Japan's decades of deflation.
Reporting by Leika Kihara; Editing by Eric Meijer