By Leika Kihara
TOKYO (Reuters) - Japan's annual core consumer inflation slowed in December for the second straight month in a further sign of the growing challenge faced by the central bank in achieving its elusive 2 percent inflation 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 as recent falls in oil costs weigh on inflation.
The core consumer price index, which includes oil products but excludes volatile fresh food costs, rose 0.7 percent in December from a year earlier, slowing from the previous month's 0.9 percent gain.
It compared with a median market forecast for a 0.8 percent gain and was the slowest pace of increase in seven months.
The so-called core-core inflation index, which excludes food and energy prices and is similar to the core index used in the United States, rose 0.3 percent in December from a year earlier.
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.
Many BOJ policymakers are wary of ramping up stimulus, though external shocks could force the central bank to pull the trigger if the economy is at risk of sliding into recession, analysts say.
(Reporting by Leika Kihara; Editing by Shri Navaratnam)