Japan's core inflation slowed in March as the effects of higher energy costs continued to fade, but it still rose 2.6 percent from a year earlier, well above the Bank of Japan's target, government data showed Friday.

For fiscal 2023 through March, core CPI, which excludes volatile fresh food, increased 2.8 percent, making it the second straight year that the key gauge of inflation remained above the BOJ's 2 percent goal. It slowed slightly from 3.0 percent in fiscal 2022.

Financial markets expect the BOJ to go ahead with another interest rate hike after its symbolic shift in March away from unorthodox monetary easing, in a reflection of growing confidence that higher wage growth will ensure stable inflation.

The rise in core CPI has been at or above 2 percent for 24 months.

Rising prices of everyday goods have weighed on household sentiment as wage growth has continued to lag the pace of inflation.

Prices of food other than perishables gained 4.6 percent while durable goods rose 1.9 percent, though the pace of increase has slowed from February, according to the Ministry of Internal Affairs and Communications.

The effects of government subsidies aimed at curbing utility bills have started to wear off, with energy prices down 0.6 percent.

Seen as an indicator of underlying inflation, core-core CPI, which strips away both energy and fresh food, rose 2.9 percent, the pace of gain slowing for the seventh straight month.

The persistent weakness of the yen, which is at its lowest levels in over three decades against the U.S. dollar, is keeping Japan's inflation elevated through higher import costs.

BOJ chief Kazuo Ueda reiterated Thursday that if the weaker yen continues to impact inflation, the Japanese central bank would consider a policy response.

The BOJ is scheduled to release new inflation and economic growth forecasts at the end of a two-day policy-setting meeting next week.

==Kyodo

© Kyodo News International, Inc., source Newswire