Japan data sustains doubt over BOJ Jan rate hike

TOKYO, Dec 26 (Reuters) Japanese consumer prices rose much as expected and personal consumption fell less than forecast in November, but doubts remain about whether the Bank of Japan will raise interest rates next month.

While a slower fall than expected in consumption kept alive speculation of a rate hike as early as January, traders felt wary of betting on it and uncertainty sent the yen to a two-month low against the dollar and depressed bond yields.

Japan's core consumer price index (CPI), which excludes volatile fresh food prices, rose 0.2 percent in November from a year earlier, matching economists' consensus forecast.

In an encouraging sign for the BOJ, overall household spending in Japan fell just 0.7 percent in November from a year earlier, a smaller rate of decline than in recent months and lower than a median forecast of a 1.3 percent drop.

Still, it was the 11th straight month of annual declines.

''Overall, today's indicators did not offer any conclusive factor regarding the possibility of a January rate hike. But they still left open the possibility of such a move,'' said Takuji Aida, chief economist at Barclays Capital Japan.

''The pace of declines in consumption slowed for the second month in a row and the fall was smaller than expected, raising chances of a rise in private consumption in October-December. That is supportive for a BOJ rate hike,'' he said.

The BOJ left its overnight call rate target at 0.25 percent at a policy board meeting last week. It has kept the rate unchanged since July, when it raised interest rates for first time in six years.

The dollar stood at 118.95 yen as of 0322 GMT after hitting a two-month high of 119.00 yen, while the yield on the benchmark 10-year government bonds hit a 10-month low on receding expectations for a January interest rate rise.

TAME GROWTH IN CONSUMER PRICES Many traders had bet on a policy shift in January, but such expectations have receded after remarks by BOJ Governor Toshihiko Fukui at a news conference last week and in a speech on Monday, in which his comments were not seen as seeking to prepare markets for a rate hike in January.

Instead, Fukui expressed caution over signs of weakness in personal consumption and price growth, stressing that future rate hikes would depend on the central bank's analysis of economic and price conditions.

Cabinet ministers said consumer price data showed Japan is getting closer to fully overcoming years of deflation.

Finance Minister Koji Omi reiterated that the central bank should support the economy through monetary policy but specific decisions on interest rates would be up to the BOJ.

Core CPI has been hovering just above zero percent in recent months and its pace of increase is expected to stay slow on a decline in crude oil prices.

Growth in nationwide CPI was supported in November as downward pressure from a reduction in mobile phone charges late last year has eased. Mobile phone charges fell a slight 0.3 percent in November from a year earlier, compared with an annual fall of 6.6 percent in October.

Yoshiki Shinke, an economist at Dai-Ichi Life Research Institute, noted that the mobile phone factor was the main reason why core CPI in November was able to rise faster than in October, when the index was up 0.1 percent from a year earlier.

''As the data was pretty much as expected, it is unlikely to have a significant impact on the Bank of Japan's policy. The latest data would not make the central bank feel positive about an interest rate hike,'' Shinke added.

Some analysts said tame growth in Tokyo consumer prices, a leading indicator of nationwide price trends as it is released early, signalled that nationwide CPI would remain soft.

Core CPI in the Tokyo area rose 0.2 percent in December from a year earlier, below a market forecast for a 0.3 percent rise.

''What's worrying is the slowing growth in Tokyo core CPI, which suggests that nationwide core CPI growth may not accelerate and could even post year-on-year growth of just 0.1 percent in December,'' said Azusa Kato, an economist at BNP Paribas.

Elsewhere, there was some good news.

Japan's seasonally adjusted unemployment rate fell to 4.0 percent in November from 4.1 percent in October, matching an eight-year low hit in May.

The jobs-to-applicants ratio for November was 1.06, meaning 106 jobs were available per 100 applicants, unchanged from October but lower than economists' consensus forecast of 1.07.

Financial markets now await industrial production data at 8:50 a.m. on Thursday (2350 GMT Wednesday) for further clues on monetary policy. Economists expect production to rise 1.1 percent in November from the previous month.

Reuters DKA DB0952