By Satoshi Sugiyama and Makiko Yamazaki

TOKYO (Reuters) -Japan’s core inflation slowed in March and an index gauging broader price trends fell below 3% for the first time in over a year, data showed on Friday, as analysts say yen weakness could complicate the central bank’s policy deliberations.

The nationwide core consumer price index (CPI), which excludes fresh food items but includes energy items, rose 2.6% in March from a year earlier, matching median market forecasts.

It decelerated from a 2.8% rise in February due to a slowdown in food price increases but stayed comfortably above the central bank’s 2% target.

Meanwhile, a gauge of price gains that excludes fresh food and energy costs and is closely watched by the Bank of Japan (BOJ) moderated to 2.9% after increasing 3.2% in February. It was the first time since November 2022 that the index fell below 3%.

“It is within the BOJ’s expectations that the growth rate of prices of goods will slow down,” said Masato Koike, economist at Sompo Institute Plus. “Rather, what is unexpected is the yen’s depreciation or the rise in crude oil prices” due to tensions in the Middle East.

Markets are seeking clues as to when the central bank will raise rates again after it ended negative rates last month in a landmark shift away from its decade-long super-easy monetary policy.

The Bank of Japan is expected to keep short-term interest rates unchanged at its next policy meeting on April 26, at which the bank also releases fresh CPI and GDP growth projections.

Separate data next week is likely to show Tokyo-area core inflation, which excludes fresh food prices and becomes available one month ahead of nationwide figures, decelerated this month.

While consumer inflation is expected to slow, the BOJ’s focus is on whether service prices accompanied by higher wage growth will pick up from here.

BOJ Governor Kazuo Ueda told reporters on Thursday the central bank may raise interest rates again if the yen’s declines significantly push up inflation.

The BOJ has said the sustained, stable achievement of its 2% price target and strong wage growth was crucial for normalising policy.

While Japanese companies offered their biggest wage hikes in 33 years this year, inflation-adjusted real wages have continued to fall for nearly two years.

A weakening yen, while pushing up import prices, threatens to further exacerbate households’ purchasing power and weigh on consumption.

An internal affairs ministry official told reporters on Friday that the impact of recent wage increases is yet to be reflected on service prices.

The government will closely monitor the impact, the official said.

(Reporting by Satoshi Sugiyama, Makiko Yamazaki and Tetsushi KajimotoEditing by Chang-Ran Kim and Sam Holmes)

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